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Sunday 22

July, 201810:36 AM



Trump tweet ineffective in cutting oil prices

Trump tweet ineffective in cutting oil prices

Oil prices have clawed their way back up after falling during Thursday's trading session in Asia following an overnight tweet from US President Donald Trump.

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05.07.2018 10:39 PM

Oil prices have clawed their way back up after falling during Thursday's trading session in Asia following an overnight tweet from US President Donald Trump. He demanded that the Organization of the Petroleum Exporting Countries (OPEC), an international oil cartel, cut its prices for crude oil.

There were some early losses during the day after some rises prior to the start of trading, before prices started to pick up toward the end of the session.

Fears of a trade war between the US and China prompted Asian stocks to be sold off on Thursday, and the losses have filtered through to oil markets.

Trump tweeted: "The OPEC monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $s. This must be a two-way street. REDUCE PRICING NOW!"

It does not look as though Trump's tweet has made any lasting difference, as the price of Brent Crude dipped below $77 a barrel on Tuesday, but after Thursday's session in Asia, it had almost reached $78 a barrel, not far off this month's high of $79.24 and well above this month's low of $72.73.

The implication of Trump's tweet is that the US should get lower prices because of the role that it plays in defending some of the OPEC nations. This is unlikely to make a difference, as OPEC is notorious for its independence and price increases are happening at least in part because of US protectionist policies and sanctions placed on oil-producing countries by the US.

Despite Trump's ongoing efforts to bring world oil prices down while increasing US production, this week, Morgan Stanley increased its forecast for Brent Crude next year to $85 a barrel. While this is nowhere near the record high for Brent Crude of $145.61 in 2008, it is well above the $65.10 a barrel seen at the start of the year.

Part of the reason for rising oil prices is that a Russian-led group of non-OPEC countries began holding back output in 2017 to decrease supply and drive up demand and prices. Another factor is the US announcing that it plans to put sanctions on Iranian oil exports starting in November.

The National Australia Bank said in its July outlook statement that “a key driver of the rise in prices has been the OPEC-Russia deal to cut oil output, compounded by collapsing Venezuelan production and the US decision to end the Iran deal."

Russia, along with OPEC, said in June that it was prepared to increase production to prevent potential shortages after some unexpected disruption in Libya and Venezuela and the expected impact from the Iran sanctions. However, Goldman Sachs said yesterday that “the market will remain in deficit” for the rest of this year. It added that this would threaten a "sharp further rise in prices".

Saudi Arabia, OPEC's largest member, has assured the US that it is able to increase oil production if it needs to and that it has a two-billion-barrels-a-day spare production capacity. This could lower prices should they become overheated due to the reduced output from Iran and Venezuela.

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