Trump says oil prices too high, blames OPEC

The Mercury (Pottstown, PA) - - BUSINESS - By David Koenig

Pres­i­dent Don­ald Trump blames OPEC for oil prices that he says are too high, and no doubt many Amer­i­cans feel the same way.

But it’s more com­pli­cated than that.

Crude has more than dou­bled since bot­tom­ing out be­low $30 a bar­rel in early 2016, caus­ing U.S. mo­torists to face the high­est ga­so­line prices since late 2014.

On Wed­nes­day, the na­tional av­er­age for a gal­lon of reg­u­lar stood at $2.91, up 25 per­cent from a year ago, ac­cord­ing to the AAA auto club.

“Oil prices are too high, OPEC is at it again. Not good!” Trump tweeted Wed­nes­day morn­ing.

OPEC is the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries. Mem­bers of the car­tel, led by Saudi Ara­bia, and other big pro­duc­ers in­clud­ing Rus­sia have played a role in re­vers­ing the plunge in crude prices that started in 2014. They have shown dis­ci­pline in lim­it­ing pro­duc­tion since the start of last year, help­ing push up the bench­mark price of in­ter­na­tional crude.

Prices, how­ever, were al­ready ris­ing on growing de­mand and ex­pec­ta­tions that a sharp pull­back in new in­vest­ment by oil com­pa­nies would re­duce the oil sup­ply.

“Over time it would have hap­pened any­way be­cause of the cut­backs in (drilling) in­vest­ment, but def­i­nitely OPEC’s cut in pro­duc­tion helped speed the re­duc­tion of the oil glut,” said Phil Flynn, an oil an­a­lyst for The Price Fu­tures Group.

Some es­ti­mates put the postcrash re­duc­tion in in­vest­ment by ma­jor oil com­pa­nies such as Exxon Mo­bil, Chevron and BP at more than $1 tril­lion. Flynn com­pared that to elim­i­nat­ing the fourth-largest oil pro­ducer in the world.

Mean­while, out­put from Venezuela — a ma­jor oil ex­porter to the U.S. — has plunged as the coun­try goes through a po­lit­i­cal and eco­nomic cri­sis. Most an­a­lysts ex­pect pro­duc­tion there to go even lower.

While Venezuela is a mem­ber of OPEC, “the dis­as­ter in Venezuela, which has cre­ated a hole in the mar­ket, is not the fault of OPEC,” said Daniel Yer­gin, the vice chair­man of re­search firm IHS Markit and au­thor of sev­eral books on the en­ergy in­dus­try.

Then there is Iran, OPEC’s

third-big­gest pro­ducer. The coun­try boosted pro­duc­tion af­ter the U.S. lifted sanc­tions re­lated to Iran’s nu­clear pro­gram in 2016, but an­a­lysts ex­pect out­put to fall when the Trump ad­min­is­tra­tion’s de­ci­sion to with­draw from the deal takes full ef­fect later this year.

U.S. com­pa­nies have filled some of the gap cre­ated by Venezuela, OPEC and non-OPEC pro­duc­ers in­clud­ing Rus­sia. Us­ing drilling ad­vances such as frack­ing, op­er­a­tors in Texas and North Dakota have pushed U.S. pro­duc­tion higher.

U.S. oil pro­duc­tion has more than dou­bled in the past decade, in­clud­ing a 19 per­cent in­crease since OPEC’s lim­its took ef­fect in Jan­uary 2017, ac­cord­ing to the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion.

Oil prices have eased slightly in re­cent weeks. Saudi Ara­bia has al­ready started pump­ing more crude. The king­dom re­ported that it in­creased pro­duc­tion in May to about 10 mil­lion bar­rels a day.

Trump’s tweet — sim­i­lar to one he wrote in April, blam­ing OPEC for “ar­ti­fi­cially Very High” oil prices — came a week be­fore a much-an­tic­i­pated OPEC meet­ing in Vi­enna and may have been de­signed to in­flu­ence the dis­cus­sion.

“The pres­i­dent’s tweets are re­ally telling the other oil-pro­duc­ing coun­tries to step up your pro­duc­tion to make up for the com­ing sharp de­clines that are ex­pected in Ira­nian oil ex­ports,” Yer­gin said.

OPEC is un­der scru­tiny in Congress, too. The House Ju­di­ciary Com­mit­tee ap­proved a bill Wed­nes­day to sub­ject OPEC to U.S. an­titrust law by re­mov­ing state im­mu­nity shields. The com­mit­tee chair­man, Rep. Bob Good­latte, R-Va., said shield­ing a car­tel like OPEC “makes a mock­ery of U.S. an­titrust law, threat­ens the Amer­i­can econ­omy and has the po­ten­tial to harm our na­tional se­cu­rity.” The mea­sure now goes to the full House.

Jason Bord­off, a Columbia Univer­sity pro­fes­sor and for­mer en­ergy ad­viser to Pres­i­dent Barack Obama, said politi­cians al­ways fret when ga­so­line prices rise be­fore a big elec­tion.

“Oil prices have come up a lot, but we’re not near $4 ga­so­line,” Bord­off said. “Ad­justed for in­fla­tion, these prices are not out of line with where we’ve seen oil prices for the last decade or two.”

Democrats are try­ing to blame Trump for higher ga­so­line prices, sens­ing the is­sue will res­onate with vot­ers in the Novem­ber midterm elec­tions that will de­ter­mine con­trol of the House and Se­nate.

MARK LENNIHAN — THE AS­SO­CI­ATED PRESS FILE

Gas prices are dis­played at a Mo­bil sta­tion in New York. Pres­i­dent Don­ald Trump is declar­ing that oil prices are too high and blam­ing a coali­tion of coun­tries that con­trol a sig­nif­i­cant por­tion of the world’s sup­ply of crude petroleum.

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