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Trump Blames OPEC For ‘Too High’ Oil Prices, Again

Trump

U.S. President Donald Trump criticized OPEC for manipulating oil prices for a second time in as many months, calling the cartel out for oil prices that are ‘too high’.

Early on Wednesday, President Trump tweeted: “Oil prices are too high, OPEC is at it again. Not good!”

This time the U.S. President used fewer words to reiterate his position that “OPEC is at it again”. In his first attack on the oil producing cartel on April 20, President Trump tweeted: “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!”

At that time, WTI Crude prices were touching $70 a barrel.

In early trade on Wednesday, at 09:22a.m., WTI Crude was down 0.51 percent at $66.02, before the weekly EIA inventory report.

Between the end of April and early June, the market chatter concerning OPEC and allies and their much-talked-about cuts made a U-turn. From reports that Saudi Arabia would be happy to see oil prices at $80 and even $100 a barrel, the most recent speculation, comments, and various reports have started to suggest that Saudi Arabia and Russia are thinking of reversing some of the production cuts in order to offset supply disruptions from Venezuela and possibly from Iran, after President Trump withdrew the United States from the Iran nuclear deal and announced new sanctions on Tehran that will kick in later this year.

Related: The Downside Of Six Figure Salaries In The Permian Boom

Then there was a report that a day before President Trump pulled the United States out of the Iran deal, a senior official of the Trump Administration phoned Saudi Arabia to ask it to help keep oil prices stable should the U.S. decision on Iran disrupt oil supply, Reuters reported last week.

President Trump’s most recent OPEC-related tweet comes just a week ahead of the OPEC and partners’ meeting in Vienna, during which they will discuss reversing some of the cuts. The meeting is expected to be one of the most contentious summits in recent years, as Iran, Venezuela, and Iraq are against boosting production and are criticizing Saudi Arabia for not having briefed them prior to commenting that production may be raised.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on June 14 2018 said:
    This is the second time that President Trump has attacked OPEC for so-called manipulation of oil prices.

    However, this time, his attack comes in the aftermath of his glorified meeting with North Korean leader Kim Jong Un. He returned to the United States with a declaration saying that they both agreed to work towards denuclearization in the Korean peninsula. However, he knows that this is an empty and meaningless declaration because North Korea will never relinquish its nuclear weapons. North Korea has fully learnt the lessons of Iraq and Iran. The Iraq lesson is that Saddam Hussein would have been still in power if he had nuclear weapons. The Iran lesson is an eye-opener for Kim Jung Un strengthening his instinct not to trust any future agreement with the United States and also not to relinquish any of his nuclear weapons.

    OPEC according to its constitution is obliged to defend the interests of its members ensuring that they get reasonable revenue from their oil exports. To achieve that goal they need a fair price of oil. This means trying to maximize return on their finite assets to the highest level the global economy can tolerate. This is a sound economic principle. A fair price for oil according to my research ranges from $100-$130 a barrel. This is a good price for OPEC and also for the global economy.

    On the other hand, the United States has been for years manipulating oil prices to achieve some geopolitical objectives and in some cases to harm oil producers with whom it does not see eye to eye. It has been doing this by claims by the EIA of big increases in US oil production and huge build in US crude oil and product inventories and also through the petrodollar.

    Any sign of rising oil prices prompts the EIA to claim significant rises in US oil production and a huge addition of a few million barrels to US oil stocks. However, an addition to stocks could only happen in three ways: one if the United States is producing far beyond its oil needs. This is not the case otherwise it will not be importing between 7-8 mbd. The other is that the US is taking advantage of low oil prices by importing so much thus increasing its stocks. If this is the case, then the rising demand for imports should push the price up. A third is that US oil demand is declining thus adding to the stocks. This is not true either as US oil demand has been steadily growing by 1.54% annually for the last four years.

    The United States is also able to manipulate oil prices through the petrodollar by which oil is priced. Raising the value of the dollar exerts a downward pressure on oil prices. Conversely, by devaluing the dollar, the actual purchasing power of the oil revenues of members of OPEC declines against other world currencies forcing them to raise oil production to maintain revenue thus depressing the oil price.

    Oil prices have been rising because of very positive market fundamentals. They were aided by the OPEC/non-OPEC production cut agreement which has virtually helped eliminating glut in the market.

    The truth of the matter is that President Trump’s attack on OPEC has dual purposes: one is to exert pressure on OPEC to increase production by 1 million barrels a day (mbd) ahead of his expected sanctions on Iran. The second has everything to do with reducing US oil import bill and far less to do with stabilizing prices because he knows that his sanctions on Iran will not affect Iran’s oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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