Despite President Donald Trump’s threat Friday that the US will not accept “artificially very high” oil prices, Washington is not expected to take any real action against OPEC or its budding long-term pact with Russia, analysts said Friday.
* Tweets that US will not accept OPEC’s ‘artificial’ prices
* While US’ Iran, Venezuela policy seen as key bullish factor
* Any move by Congress to target OPEC not likely to have impact
But Trump may be setting the stage for next month, when two of his own policies — potential sanctions against Iranian and Venezuelan oil — could push oil prices higher.
Related story:Trump accuses OPEC of ‘artificially’ boosting oil prices
“Getting ahead of the blame game is one way to look at it,” said Joe McMonigle, an oil analyst for Hedgeye Risk Management and former Department of Energy chief of staff.
Trump has threatened to withdraw from the Iran nuclear deal rather than waiving sanctions on Tehran by the next deadline of May 12. And Venezuelan elections set for May 20 are expected to act as a trigger for additional US sanctions against the Maduro regime, which could include bans on crude or oil products.
“It’s safe to say, given the president’s tweet, that from now on the oil price implications of various actions — Iran, Venezuela, even other places — will now be taken into account,” said Bob McNally, president of The Rapidan Group. “This is a wake-up call that indicates a new sensitivity.”
McMonigle said the tweet also signals to US allies in the Mideast like Saudi Arabia that Trump will pressure them to increase production in response to any supply disruptions related to Iran, Venezuela or other geopolitical risks.
Trump tweeted early Friday that it “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!”
The tweet sent oil prices lower Friday. At 1712 GMT, NYMEX May crude was 16 cents lower at $68.13/b, off an intraday low of $67.50/b. After trading as low as $72.83/b, ICE June Brent was down 9 cents at $73.69/b.
PUTTING GULF ALLIES ON NOTICE
Amy Myers Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations, said “one can only guess” what triggered Trump’s tweet, but she agrees that it was likely aimed at US allies in the Persian Gulf.
“My sense is that the White House has many complex issues on their plate, including Venezuela, [the] Iran nuclear deal and sanctions recertification, Russian sanctions, the accelerating proxy war in Yemen,” Jaffe said by email.
“The tweet was targeting US allies in the Gulf to be on notice that taking steps to tighten the oil market at a high-demand season when there is so much political risk is irresponsible and counter to the actions one might expect from aligned and responsible allies,” she said.
Years before the US shale revolution, Congress would introduce anti-OPEC legislation whenever oil prices spiked — dubbing it the No Oil Producing and Exporting Cartels Act, or NOPEC. Analysts said that could happen again with the current price rise, but no one expects such a bill to have any real impact.
“NOPEC is high-crude-price candy corn,” said Kevin Book, managing director of ClearView Energy Partners. “Lawmakers bring it out every time they can, even though a lot of them can’t actually stomach it.”
Book added that “one tweet is not enough for us to seriously anticipate presidential efforts to target Russia/OPEC for notionally cartel-like behavior or a revival of the decade-old” NOPEC legislation.
Robbie Diamond, president and CEO of Securing America’s Future Energy, a group that works to cut US dependence on oil, said Trump characterized OPEC accurately in the tweet.
“If our companies met together — Exxon, Shell, BP, Chevron — and they decided how much oil they would put on the market or off the market, they would be thrown into jail,” Diamond said. “So there’s no excuse when Russia meets with Saudi Arabia, meets with Iran or whatever other producer in OPEC. That’s the same thing.”
Diamond said the shale revolution has allowed the US to become complacent about energy security and remains vulnerable to oil price shocks. He urged the Trump administration to create a commission to try to break up OPEC on national security grounds, similar to the steel and aluminum tariffs.
“Oil should be at the top of the list of our national security concerns,” he said.
PAIN AT THE PUMP
While many analysts did not think Trump had rising domestic gasoline prices in mind when he tweeted, the coming height of the summer driving season does serve as an important political backdrop. They said the White House could blame OPEC for any pain at the pump that blunts the economic benefits of Trump’s tax cuts.
“Of course it is material to any concern that oil markets not be destabilized by overly aggressive OPEC actions (and statements like how $100/b would be a good target),” Jaffe said of the peak summer driving season.
McMonigle said Trump the populist could capitalize on gasoline prices, but not quite yet.
“Yes, prices have been going up, but they haven’t gone up that much,” he said. “So I don’t know that we’re at a tipping point.”
Higher crude is expected to boost retail gasoline prices 14% this summer from last year, according to the Energy Information Administration. EIA sees regular-grade retail gasoline prices averaging $2.74/gal during the April-September summer driving season, up from last summer’s average of $2.41/gal, according to the Short-Term Energy Outlook.
EIA said the average US household will spend about 9% more on motor fuel this year compared with 2017.
“To the extent that the White House might want to deflect pump-price accountability associated with these actions, blaming OPEC remains a time-honored Washington tradition,” ClearView’s Book said of the potential sanctions on Iran and Venezuela.
–Meghan Gordon, email@example.com
–Edited by Valarie Jackson, firstname.lastname@example.org
Request a free trial of: Oilgram Price Report
Oilgram Price Report is a daily report that covers market changes, market fundamentals and factors driving prices. Oilgram Price Report also brings a vast array of Platts international prices for crude and products, netback tables, and market critical data.