Oil Traders Should Ignore Trump’s OPEC Tweets

It’s strange being an oil and energy stock trader these days. Of course, the policies coming from Washington always had an impact on where oil prices were headed, but it’s a brand-new thing to have the White House’s twitter feed as a regular source of risk for positions in oil and oil stocks.

I mean – really. I understand the President trying to coax OPEC into keeping gas prices low during a summer driving season right in front of a midterm election. Bush tried it, even making a specific trip to the Saudi kingdom. But that was when oil prices were screaming above $110 a barrel, and not just licking at $75 bucks – a price the old President Bush would have killed for. But this twitter barrage is just pathetic.

And Trump’s lack of understanding of the dynamics of OPEC and the global oil markets come through particularly clearly with every tweet he sends and FOX interview he gives.

Of course OPEC is ‘manipulating’ the price of oil – that’s precisely why OPEC was created – it’s virtually the definition of what a cartel DOES.

And naturally the Saudis will ply the President with the old ‘market balance and stability’ line as well – the readout of the telephone conversation between Trump and the Saudi king looked almost exactly like the conversations other Presidents have had in the past with Saudi Arabia on oil prices – and just as meaningless. But Trump, referring to the 2 million barrels of remaining Saudi spare capacity, saw that as a promise of additional oil barrels the Saudis would send to market to help drop prices.

So, so wrong. That 2 million barrels of spare capacity is in fact a bullish sign for the markets – and a worrying one as well, as it is at the LOWEST LEVEL ever in history – and implies HOW LITTLE more oil can come to market from Saudi Arabia, and not HOW MUCH more.

The Iranians started the last week as part of the comedy of errors, actually looking worried about the President’s statement, believing, at least for the moment, that the Saudis might actually take unilateral action to appease Trump and warning sharply against it.

But by the end of the week, having had time to conference with their Saudi counterparts, the rhetoric towards the Trump twitter storm actually turned to a bit of comedy of their own --- and Iran is not particularly known for its sense of humor:

“Your tweets have driven the prices up by at least $10 per barrel,” Iranian oil minister Kazempour said in a message carried by Iranian Oil Ministry’s Shana news service: “Pls stop it, otherwise it will go even higher!”

Because - finally – Iran and Saudi Arabia know that the markets have and will continue to ignore the President’s twitter feed. In fact, there is a long history, going back to President Bush and even well before that, of calmly plying the OPEC forces to move prices with little regard for American cajoling – or threats. Nothing has changed because of the Trump tweet storm, or likely will. The Vienna deal remains in place, the Saudis wouldn’t dare adjust it without a general (or emergency) meeting, and oil prices will continue to move higher – all as I’ve continued to predict here in my columns to you.

In fact, the news of low Saudi spare capacity is a harbinger of even more bullish activity ahead – that was the one lone real fact that emerged from the President’s conversations with Saudi Arabia and his tweets. Contrary to his wishes, oil prices are set to continue higher.