Industry experts and even the Organization of Petroleum Exporting Countries are acknowledging that President Trump's tweets calling for more oil production may be having an effect.
Trump warned OPEC last month that "oil prices are artificially Very High! No good and will not be accepted!" On Friday, it became clear that OPEC listened.
Saudi Arabia, the largest member of OPEC, and Russia, the leader of non-OPEC countries that are cooperating with the oil group to restrict supply to boost prices, said they are prepared to change course and increase production to calm consumer fears.
OPEC Secretary General Mohammed Barkindo said Trump’s prodding had inspired the idea of upping oil production.
“We pride ourselves as friends of the United States,” Barkindo said during a panel with the Saudi and Russian energy ministers.
One expert said Trump's direct message helped spur action.
“The president's tweet was speaking truth to power to the oil producing countries,” Amy Myers Jaffe, a leading expert on global energy policy at the Council on Foreign Relations, told the Washington Examiner. “When private negotiations don't work, there is a place in diplomacy for public statements, and the president’s tweet was extremely well timed. It got people's attention, and there has obviously been subsequent dialogue with our allies. You are seeing the response now.”
The countries are discussing raising oil production by about 1 million barrels per day, Reuters reported, after 17 months of supply curbs.
The move would be a dramatic about-face for Saudi Arabia and Russia, which had been discussing extending by 10 to 20 years its agreement to cut oil supplies.
Most OPEC nations have been harmed financially by low oil prices over the past three years, driven in part by less demand from the U.S., which is producing more at home.
But prices have rallied in recent months, as some OPEC countries restricted production more than the amount targeted under the agreement, and other supply disruptions have occurred. One disruption was an unintended reduction from Venezuela, which is suffering from a political and financial crisis.
Energy experts also warn of future price increases caused by impending U.S. oil sanctions on Iran after Trump abandoned the nuclear agreement with Tehran.
While higher oil prices benefit U.S. producers and help advance the president’s “energy dominance agenda,” Trump has noticed the corresponding spike in gasoline prices. The price of crude oil is the largest component of gasoline prices.
“OPEC, and all producers, benefit from higher prices, but too high too quickly can have an adverse impact on economic growth and energy demand, as well as stimulating new supply, so OPEC needs to be careful as they try to manage the market here,” said Frank Verrastro, senior vice president of the energy and national security program at Center for Strategic and International Studies.
“For the U.S., Memorial Day kicks off the summer driving season and U.S. consumers are seeing gasoline pump prices this year up 50-65 cents per gallon from last summer, and not happy about it,” he said.
The Trump administration has worked to bolster ties with Saudi Arabia, as the two powers pursue shared goals in the Middle East, such as combating Iranian influence. Experts say that leverage may be pushing the Saudis to listen to Trump.
“Lower oil prices may be the price for Saudi Arabia to get the policy they want against Iran,” Antoine Halff, a senior research scholar with the Center on Global Energy Policy at Columbia University, told the Washington Examiner.
Verrastro and Halff say Americans aren’t the only ones complaining about higher oil prices, and Trump may not be the most important player urging action. India, a large and growing consumer of oil, has called on OPEC to moderate prices by adding supply to the market.
“For the Saudis, Indian demand is much more important than the U.S. market,” Halff said. “Even though India politically has less clout than Trump, from a market perspective it has much more power than the U.S. has. So if the Saudis do decide to increase production, I would not necessarily give all credit to Trump.”
Halff, and some experts and critics, say some of the Trump administration’s recent policy moves may actually be contributing to higher prices.
Myers Jaffe said the Environmental Protection Agency’s attempt to weaken fuel efficiency standards for cars and light trucks would increase demand for oil, putting an upward pressure on prices.
“Trump has a smart global diplomatic effort on oil, and has an EPA that is out of alignment on that effort, and he needs to jive those two things,” Jaffe said.
Halff said Trump leaving the Iran nuclear deal and imposing sanctions on countries that purchase that country’s oil will limit supply from Tehran, a major producer, raising prices.
Oil experts estimate that renewed sanctions could take about 350,000 to 500,000 barrels a day of Iranian crude off world markets.
“Trump has pushed the price up much more than he is helping push the price down,” Halff said.
Jaffe says that impact is exaggerated, noting the U.S. has given countries 180 days to show they are ramping down Iranian oil imports, and is willing to allow exemptions to that.
“The concern is overblown,” Jaffe said. “The OPEC guys can replace the lost production from Iran. From the oil point of view, the Trump administration is doing it 100 percent correctly.”
