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04-21-2018, 04:06 AM #1
Donald Trump Did Something Smart Today. It Involved Oil.
Donald Trump Did Something Smart Today. It Involved Oil.
By Jordan Weissmann
April 20, 20181:05 PM
Donald Trump is not happy about the price of oil.
Donald J. Trump
✔
@realDonaldTrump
Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
6:57 AM - Apr 20, 2018
Global oil prices are up roughly 46 percent over the past year thanks in large part to a historic agreement OPEC’s members struck with Russia in late 2016 to restrict production, with the hope of draining a worldwide glut of crude that had caused the market to crash. There are other reasons why oil has recovered: Venezuela’s economic and political turmoil has led its production to collapse; the U.S. economy is humming. But by all accounts, Russia’s supply cuts have worked just as intended. This week the countries met at a joint technical panel and concluded that they had nearly hit their goal of reducing the world’s oil stocks.
How does that square with Trump’s tweet? When the president says there are “record amounts of oil all over the place,” I’m guessing he just means that the world has plenty of crude that could be drilled (thank fracking for that), and he is ticked that OPEC has managed to keep prices up. As always, interpreting Trump’s telegraphic outbursts is an imprecise art, but the most generous read here is that the president understands this issue correctly.
Even if Trump’s grasp of oil economics is flimsier than I’m giving him credit for, his tweet may still be a deft move. The deal between OPEC and Russia is slated to last through the end of this year, and the countries are gathering in June to decide a path going forward. Reports surfaced this week that Saudi Arabia, OPEC’s key member, may want to push oil prices up to $100 per barrel in the future—it’s around $73 today—in order to fix its budget, make the coming IPO of its state oil company more attractive, and fund various ambitious projects. It is unclear how serious the Saudis are about this, or if OPEC and Russia are even capable of such a thing—if prices keep rising, American drillers in North Dakota and Texas might ramp up production enough to bring them back down. But by tweeting his displeasure, Trump is signaling that he won’t simply stand by and watch the Saudis and their compatriots toy with the market.
It’s not entirely clear what Trump would do. The U.S. could try to directly bring down the cost of crude by tapping its strategic oil reserve, but that seems unlikely outside of a true emergency. More likely, he could try to exert some sort of political pressure on the Saudis, maybe by threatening to yank some sort of military support. But either way, he’s giving OPEC’s most important member a reason to think twice about trying anything rash with the oil market, and traders took his tweet seriously enough that prices dropped a bit this morning.
It’s worth noting here that more expensive oil might not be such a terrible thing for the U.S. these days. While higher gas prices aren’t great for consumers, investment by drillers looking to capitalize on rising crude values has given the economy a big boost lately. As a bonus, making fuel more expensive might reduce consumption a bit, which is ideal if you are hoping to avoid frying the planet. Still, Trump clearly senses that pricey oil would be dangerous for him politically, and all things considered, his tweet is a reasonably smart way to start heading off the problem.
https://slate.com/business/2018/04/d...kes-sense.htmlLast edited by Judy; 04-21-2018 at 04:12 AM.
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