Trump de­clares oil prices too high, blames OPEC

The Oklahoman - - RETAIL - BY DAVID KOENIG AP Busi­ness Writer

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. Mo­torists in Oklahoma County are spend­ing an av­er­age of $65 more a month to fill up com­pared to last sum­mer, ac­cord­ing to AAA Oklahoma.

“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 post-crash 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.

Out of OPEC’s con­trol

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, Oklahoma 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.

[AP FILE PHOTO]

This April 18 photo shows ga­so­line prices at a Mo­bil sta­tion in New York.

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