High oil prices concerned U.S. President Donald J. Trump blasted Middle East oil producers on Twitter.
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| --The Organization of the Petroleoum Exporting Countries (OPEC) headquarters in Vienna on June 19, 2018. |
President Donald Trump blasted Middle East oil producers on Twitter Thursday, saying "they continue to push for higher and higher oil prices!" — but oil prices are at current levels due to demand from the United States and the Trump administration’s hard line on Iran, say petroleum market experts. What’s more, with the U.S. now the top oil-producing country in the world, lower prices could hurt the American companies — and workers — in the industry.
In a familiar refrain on Thursday morning, Trump tweeted, "We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!"
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We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!
— Donald J. Trump (@realDonaldTrump) September 20, 2018
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In actuality, this is largely a demand-fueled price increase that is due to robust U.S. and global economic growth, said Pat McKinnon, senior director at Euler Hermes North America. “The rise you see in prices here is fundamentally based around demand,” he said.
“The global economy has actually done better than most people expected in the most recent years, which obviously means you have higher demand. As a result, you have a tighter oil market than you probably would have predicted a couple years ago,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
And in reality, it’s unlikely that the Organization of the Petroleum Exporting Countries would bend to Trump’s demand — which they likely couldn't do, even if they were so inclined.
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| -U.S. Dependence on Middle East |
“There’s really very little amount of spare capacity among OPEC members, and U.S. producers are already limited by pipeline capacity, especially in West Texas,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.
“His hardline on Iran is going to cost Americans more at the pump,” DeHaan said. As of now, he estimated that the Iran effect only is contributing about a nickel or so towards today’s prices on the average gallon of gas. “It’s more of a risk premium than anything else,” he said.
But DeHaan predicted that could change after OPEC meets later this year. “I think at that meeting in late November they’ll very closely look at the impact the sanctions are having,” he said, and any surprises could trigger a market shock.
Of course, if Iranian production continued unabated, this risk premium — and the threat of higher prices down the road — would no longer be in play, but experts concede this is unlikely to happen.
“One way he could try to push prices down would be to go easy on Iran,” Kirkegaard said. “He can’t have his cake and eat it too, so to speak.”
The U.S. is the World's Top Producers
- U.S crude oil exports averaged 1.1 million barrels per day (mb/d) in 2017, twice as high as 2016. It was the second full-year since the prohibition on crude exports had been lifted.
- Canada remained the largest buyer at 29 percent of total U.S. exports. But a notable development was the emergence of China as a major buyer of U.S. crude, representing 20 percent of the total.
- Breaking it down by product type, crude oil only accounts for 18 percent of total petroleum product exports, with hydrocarbon gas liquids (HGL) and distillates each accounting for 22 percent.
Market Movers
• TransCanada (NYSE: TRP) saw its stock dip after U.S. FERC cut a key tax break that benefits pipeline companies. TransCanada said it expects “no material financial impact.”
• SandRidge Energy (NYSE: SD) says it rejected the takeover offer from Midstates Petroleum (NYSE: MPO), eyeing other options.
• Eni (NYSE: E) raised its dividend by nearly 4 percent to 0.83 euros per share, the first change in its shareholder payout since 2015.
Tuesday March 20, 2018
Oil prices have climbed at the start of the week on Middle East tension, falling production in Venezuela and a weakening of the U.S. dollar.
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