Oil prices reversed gains and dipped early on Friday after U.S. President Donald Trump tweeted that oil prices are “artificially very high” and “will not be accepted”, the day after the price of oil reached its highest level since the end of 2014.
At 08:44 a.m. EDT on Friday, WTI Crude was down 0.57 percent at $67.94 and Brent Crude was down 0.66 percent at $73.29.
President Trump tweeted early on Friday:
“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 came a day after oil prices reached end-2014 highs, with WTI Crude nearing $70 a barrel early on Thursday, following another drop in U.S. inventories and talk of Saudi Arabia reportedly pushing for oil prices as high as $100 a barrel.
Trump’s comments also come on the day on which energy ministers from OPEC and their Russia-led non-OPEC partners were meeting in Saudi Arabia to discuss the state of the oil market.
Yesterday, a meeting of the Joint Technical Committee (JTC) of the OPEC and non-OPEC oil producers found that oil inventories in developed economies had dropped to just 12 million barrels over the official target of the cuts—the five-year average.
After today’s meeting, the energy ministers of OPEC’s de facto leader Saudi Arabia and of Russia hinted at countering strategies, according to the first reports out of Jeddah, Saudi Arabia.
Saudi Energy Minister Khalid al-Falih said that despite the drop in global oil inventories, there is still work to be done. Related: How High Can Trump Push Oil Prices?
“We have to be patient, we don’t want to jump the gun, we don’t want to be complacent and listen to some of the noise that ‘mission accomplished’ and things of that sort,” al-Falih said.
Russia’s Alexander Novak, for his part, hinted to CNBC that Russia may not stay committed to the deal until the end of the year, although he dodged attempts to get a solid answer. According to Russia’s TASS agency, Novak also said that at the June meeting the partners could consider reducing the quotas in the production cut deal.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Disaster Looms Over Libyan Oil
- The Overlooked Implications Of The U.S. Shale Boom
- Should Saudi Arabia Fear Higher Oil Prices?
Also, unlike Trump I don't really care. I think OPEC/Russia are slitting their own throats. The higher the price the more they incent the US shale oil and offshore industry.
If they were not, why then should President Trump worry about rising oil prices since rising shale oil production would have offset OPEC’s & Russia’s production cuts and would have also forced prices down.
The unvarnished truth is that the global oil market has already factored in these claims as more of a hype than a reality.
Actually it was the United States who has been manipulating oil prices since 2014 by claims of major increases in US shale oil production and rises in US crude oil and gasoline inventories and also by alternating the value of the petrodollar. OPEC is not manipulating oil prices. They have only taken measures to defend their interests something the United States would have done for sure.
Saudi Arabia and the majority of OPEC members need an oil price of $100 or higher to balance their budgets. To achieve this goal, they have to bolster the current positive fundamentals in the global oil market by extending the OPEC/non-OPEC production cut agreement well into the future. This could be in the form of a permanent mechanism flexible enough to react quickly to a tightening in the oil market or a build in crude oil and gasoline inventories.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
He probably doesn't even really understand his comment. His idea of punishing OPEC would probably be to start a war in Iran.
The OPEC is misbehaving and will have other consequences, both politically and economically. There are countries like India which has a large population of muslims which may be pushed out into the middle east if antagonised too much by unacceptably high oil prices. This will result in flooding of middle east with over 200 million refugees and almost a complete breakdown of society and food crisis. Oil is never just about trade but also about political settlement. If the right dues are not paid, there will be repercussions. Arabs can manipulate prices to Europe or Americas, but countries which actually do a favour to Arabs must be given oil as a favour itself
In addition,.economically the impact of high oil prices will be that all other commodities will also become expensive and hence mitigate the increased income. If the inflation rises heavily, the value of money will go down and hence the OPEC countries will not be able to manage things. The cost of oil reaching 100 dollars a barrel is akin to raising inflation severely.
With a sustained 100$ oil price, the rise in US oil production will be unstoppable and incredible, OPEC and Russia will have no response when the US is pumping 15+ millions bpd in the couple of years.
Yes the US now exports oil, but we only export oil that we cannot refine (shale oil usually), and shale oil costs very much more than old conventional oil from days past. The 5-6 mmbopd from our new shale oil plays is very light weight (has a API gravity of about 35 - 60) and our refineries are designed to use lower API gravity crude which we typically import. We can blend the shale oil with imported lower API crude oil for our refineries, but we still have an excess of high API crude from our shale oil, so the shale oil gets a better price on the open market versus here in the US where we have an excess of shale oil that cannot be refined in the refineries we have. So we now export a portion of our high API shale oil.
In total we are NOT energy independent since we still have to import about 8 mmbopd, but only export about 1.7 mmbopd. The price of crude will be going up since the world doesn't have a surplus anymore, and due to the low price of crude oil over the past 4 years oil & gas companies have not been making the needed CAPEX investments needed each year since 2014 when oil prices dropped.
As a result of reduced CAPEX dollars allocated to find and produce crude oil worldwide, the needed discovery of 30 billion barrels each year which is needed to replace the 30 billion barrels per year the world uses, is not being found. We are only finding about 7 billion barrels of new crude oil per year which will result in a world deficit of crude oil at some point in the future.
The reason the world was flooded with shale oil from 2010 until 2014 is due to ZIRP (zero interest rate monetary policy). With money being extremely and historically cheap and easy to gain access to, many oil & gas companies produced the new expensive shale oil which flooded the world markets. But the new expensive shale oil was being produced at a loss. If you look at the investment statements of the 24 major shale oil producers at year end 2014, you will see that they were operating at a loss with negative free cash flows and this was with $100/barrel oil.
Again, crude oil today cost much more now since the easy cheap oil has been found years ago. The US shale oil is much more expensive to produce and the shale oil declines much faster (decline about 65%/year) than conventional oil which declines at about 4-6%/year. We need at least $70-80/barrel if we expect to meet world crude oil demand in the future.
This is basic economics and how commodities are found and used up over time. Do not be sucked into the wall street hype about the US having all the shale oil we need, because it is not true, and what we do have costs much more than old conventional oil to produce. Regards.
It seems that since the beginning of the oil trade, oil is one commodity that trades according to the laws of supply and demand. Other factors such as seasonality will also have to be take into consideration. Trump is a clown and oil is a commodity.