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Commodities Newsmaker 2018: Trump And The Tweets That Transformed Oil

Published 12/24/2018, 01:20 AM
Updated 09/02/2020, 02:05 AM

Like him or loathe him, Donald Trump’s propensity for making news and affecting the outcome simply cannot be understated. And if there’s one area where the US President was top newsmaker this year, it was commodities, where the kind of boom-and-bust that typically occurs to oil prices over a generation happened within a span of months from his tweets.

Issuing presidential decrees in 140-characters is something the world has come to expect of Trump, be it on matters of immigration, trade, climate change or even White House sackings. On Wall Street, traders also watch Trump’s Twitter handle all day, with an app called the “Trump Trigger” on hand to help people keep tabs on publicly-traded companies that could see huge price swings from a mere mention by him.

But the energy industry, stretching from the heartland of Texas to Wyoming, Montana and North Dakota to name a few locations, has customarily operated in a more detached manner from the Oval Office, and, by extension, with Trump—despite the president counting oilmen as among his biggest supporters, also courtesy of the strong pro-energy policies he advocated since the start of his 2016 White House campaign. As this year began, Trump allowed new offshore oil and gas drilling in nearly all United States coastal waters, and early this month, opened up nine million acres in Western US for drilling. He also rolled back a climate change rule that restricted new coal plants.

Trump's Tweets Cost Him Fans In The Industry

Still, the president’s tweets for low oil prices this year may have left him with fewer admirers within the industry.

WTI Weekly Chart

The saga began in spring when Trump canceled an Obama-era US nuclear accord with Iran and threatened to place sanctions on crude exports from Tehran. When crude prices shot up as a result of feared supply tightness from the sanctions, the president tweeted demanding that Saudi Arabia and other OPEC oil suppliers produce more.

After the enlarged OPEC+ group, including Russia, turned its spigots on in full, he issued unexpected waivers on Iranian oil exports that practically left the market with more oil than it needed. Just as dramatically as crude prices rose on Trump’s early actions over Iran, they later fell, with the initial rally of 30 percent dwarfed by the selloff that’s now exceeded 40 percent. But when OPEC said it would have to cut supplies because of the slump, Trump again began tweeting that it shouldn’t.

At about the same time, the Saudis became embroiled in the murder of journalist and US resident Jamal Khashoggi, handing the president an unbelievable trump card to indirectly pressure the Kingdom to do his bidding if it wished to escape US sanctions for the murder. The Saudi government was never penalized for the murder and OPEC went ahead to announce a production cut early this month.

Recession Fears Hurting Prices Now

But oil prices have remained in freefall since, with fears of a global recession now pressuring the market.

Phil Flynn, senior energy analyst at Chicago’s Price Futures Group, who’s followed the oil industry and its interactions with the White House for over 30 years, notes that Trump has achieved what no other commander-in-chief had achieved before. Said Flynn:

“We’ve heard for years that presidents have little control of energy prices. In past years, President Obama or President Bush have said ‘I can’t control gasoline prices.' But Donald Trump has proven that wrong. ‘You can,’ he says and he’s proven that with his tweeting. And via his tweets on the trade war with China, he’s also disrupted soybean and metals prices as these are the major imports for China.”

Soybeans And Copper Also Pummelled

But Flynn, who supported Trump for president, says his adulation for the man has been cut short by the havoc wreaked on oil prices:

“The way the market has been the last couple of months, I’m not very happy. And I don’t think a lot of his fan base in the energy market is very happy either. If he turns the China situation around, then good. But if it becomes a protracted trade war, with extreme price volatility, I don’t think it’s good for anybody.”

Since Washington and Beijing announced a 90-day truce in their tariffs battle earlier this month, China has taken delivery of two major consignments of US soybeans. But soybean prices have hardly risen on the news, staying on track for an 8 percent loss on the year. Copper remains depressed too, headed for a 19 percent drop.

Pain For Some, Joy For Others

Steven Green, a Texas-based oilfield services expert who shuttered his business of fishing broken equipment from oil wells during the first shale price bust a few years ago, said he was trying to get financing to reopen “but Trump’s tweets against oil prices have made it harder for me to get a loan.”

Steve Smith, a shale deal-maker in Big Spring, Texas, is also disillusioned. He said:

“We were getting $77 for a barrel a couple of months ago. That didn’t come free flowing out of the wells. We had to frack, drill and pump it out with very expensive equipment and very high utility bills. Say, you were making $100,000 a year and suddenly in two months, you’re living on $30,000 while your expenses are something else. That’s what it is.”

Trump hasn’t tweeted about oil since the OPEC meeting that ended two weeks ago. He didn't need to, with prices down $30 per barrel from the year’s highs.

But even if he does, not everyone might be upset. Tariq Zahir of New York oil fund Tyche Capital Advisors said:

“His tweets temper the bulls and for a bear like me, that works. I don’t have to worry about getting out of a short position. Trump’s on my side for low prices.”

Latest comments

hllo mr
Hello :)
very insightful. Bulls are coming sooner... we are just waiting for Trump to tells us to come.
Thanks for the feedback.Do continue reading/commenting on us here and on Twitter @Investingcom. My personal handle is @barani_krishnan
great information.
Thanks much, Rajan.Follow us: @Investingcom(my handle) barani_krishnan
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