Trump declares oil prices too high, blames OPEC
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.
This April 18 photo shows gasoline prices at a Mobil station in New York.