Oil prices have risen back to levels that earlier this year prompted U.S. President Donald Trump to take to Twitter and demand OPEC do more to bring them down.
Front-month Brent futures settled well above $79 per barrel on Wednesday, the highest for over three months, and above levels that have spurred the president to complain in the past.
“The OPEC monopoly must remember that gas prices are up and they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members,” the president wrote in July.
“REDUCE PRICING NOW!” the president demanded in his trademark all-capitals style when Brent was trading at only $78 per barrel on July 4.
The president had already grumbled on June 13, when Brent was over $76, writing “Oil prices are too high, OPEC is at it again. Not good!”.
And his first intervention came on April 20, when Brent was just $74, tweeting “Oil prices are artificially Very High! No good and will not be accepted!”
The president has repeatedly blamed OPEC for not pumping enough, even as his administration has worked closely with Saudi Arabia to cut off oil exports from Iran.
The renewed rise in prices must therefore be increasing the risk the president will complain again and press OPEC – in effect Saudi Arabia, which holds almost all spare capacity – to increase production further.
There is some evidence that presidential tweets, as well as private conversations with Saudi policymakers, have influenced the kingdom’s production policy.
The president’s tweets between late April and early July coincided with a sharp change in Saudi rhetoric about the state of the oil market and need for more supplies, followed quickly by a ramp up in the kingdom’s production.
While some commentators have dismissed the tweets as empty political theatre, they have probably had a real impact on supplies.
The president’s interventions, on twitter and behind-the-scenes, are therefore significant for prices, at least in the short and medium term.
Oil prices are always politically sensitive in the United States, but especially now, with sanctions on Iran due to be re-imposed on Nov. 4 and congressional elections on Nov. 6.
Neither the White House nor Saudi Arabia wants to be blamed for pursuing policies that push up costs for American motorists.
The cost of living has already emerged as a minor electoral issue, with an argument about whether faster wage gains are being wiped out by inflation.
Presidential tweets are therefore an attempt to shift blame as well as push allies to increase output faster and further than they might otherwise.
So the renewed rise in benchmark oil prices is unlikely to be welcomed by the White House, but prices might have headroom to rise by another few dollars before drawing another intervention.
As earlier tweets have made clear, the president worries about gasoline prices paid by U.S. motorists rather than the price of crude.
Wholesale U.S. gasoline prices are still below levels that prompted tweets earlier this year, at around $85 per barrel, compared with $88 to $92 between late April and early July.
The switch from summer grade gasoline, which is more expensive for refiners to produce, to winter grade has helped cut gasoline prices faced by motorists.
Gasoline prices have also softened as refiners have processed record volumes of crude during the summer months and gasoline stocks have risen to a record for the time of year.
Gasoline futures are currently trading just $6 per barrel above Brent compared with $12-14 at the time of the president’s tweets.
While crude prices have already returned to the tweet zone, fuel prices are still a few dollars per barrel below, which may reduce sensitivity for the time being.
The United States and Saudi Arabia are fully aligned on the issue of Iran sanctions and senior policymakers from both countries appear to be coordinating closely.
Saudi Arabia’s oil minister has been on a high-profile visit to the United States this week including discussions with the U.S. energy secretary.
Both countries have a strong interest in the successful introduction of sanctions without causing a politically damaging spike in oil prices.
But gasoline prices are already fairly high and most hedge fund managers are now betting they will rise even further in the future.
The policy pathway for reducing Iran’s oil exports without creating a spike in fuel prices is narrow and may be difficult to execute in practice.
If crude and gasoline prices do continue to rise, the White House may be tempted to release more crude from the U.S. Strategic Petroleum Reserve or renew its pressure on Saudi Arabia to increase output even faster, either via public tweet or private conversations.
Source: ReutersPrevious Next
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