Like the Pied Piper of Hamelin, U.S. President Donald Trump rid the oil market of its excessive supply by imposing sanctions on Iran and Venezuela.
Then when OPEC didn’t give him the payback he wanted in higher production, he picked a trade fight with China that came along at the right time, throwing crude prices into a week of upheaval.
As the Disrupter-in-Chief of high oil prices, Trump is a figure feared by oil bulls and producers alike.
Not a week passes without traders, as well as bigwigs in OPEC, wondering what tweet will come from the president next to torpedo the rally in oil.
How Low Does Trump Need Oil Prices To Go?
It’s no secret that Trump needs prices of crude, or more importantly gasoline at U.S. pumps, to be as low as possible over the next 18 months as he embarks on his November 2020 reelection bid.
The question, of course, is how low is “low enough” for the president?
If Trump’s past tweets celebrating each slide in pump prices—and exhorting for even sharper drops—are an indication, there just may be no limit to what the president seeks.
Of course, the Organization of the Petroleum Exporting Countries, especially Saudi Arabia, has different ideas as to where the market should be.
The impact of Trump’s tweets on oil has been the subject of intense debate. Renowned energy analyst Anas F. Alhajji even wrote in a March blog: “Surprise: Trump’s Oil Tweets Do Not Matter!—a conclusion made from his review of ten such tweets and their before-and-after effects.
Regardless of that, Alhajji says, “one fact stands out: the President of the United States is using his might to manipulate oil prices.”
For momentum-sensitive hedge funds and other headline traders on Wall Street, often that’s all that is needed for them to sell.
Said Phil Flynn, senior energy analyst at The Price Futures Group in Chicago:
“You can’t beat the impact of a presidential tweet. Forget missiles flying in North Korea or missiles flying from terror groups into Israel. It’s all about the tweet. It’s the art of the deal or perhaps the art of the tweet. Trump tweeted that oil prices were too high, and they came down again.”
U.S. President’s Tweets Distract Market From Real Fundamentals
For oil bulls like Flynn, the typical price slide on a Trump tweet belies serious supply disruptions and geopolitical tensions that should call for premiums in crude instead.
Thus, this week’s roller-coaster ride on China, to him, was just “another wacky week in oil, (which) seems to get a bit wackier every day”.
Flynn bemoans scant attention to things like last week’s 4-million barrel drop in U.S. crude inventories, projectiles fired from North Korea, ongoing fighting in Libya and threats by Iran to shut down two of the world’s most important waterways: the Strait of Hormoz and the Bab el-Mandeb Strait.
Flynn added:
"Iran has given Europe an ultimatum to get the U.S. off its back or it will backtrack out of the old nuclear deal and begin enriching uranium."
"The EU, overnight, urged Iran to respect the nuclear deal and says it aims to continue trading with Islamic Republic despite U.S. sanctions."
While there’s no evidence to suggest that Trump’s adverse tweets on China this week were partly intended to halt the rally in oil, the fact that he didn’t express any regret for the impact affirms his bias.
More Price Battles Seen Between Trump And OPEC
To be fair, Trump’s admission, on Thursday, that Chinese President Xi Jinping had written him a “beautiful letter” that had made him pause on his plan for heavier tariffs on China had the same calming effect on oil as on equities—helping crude recover almost all of the 2% drop earlier when he said China “broke the deal” in trade talks and “will pay”.
The coming months may see more price battles between Trump and the Saudis, who raised the Official Selling Price of their Arab Heavy crude to Asian customers last week, in a bid to keep physical prices on par with the action in futures.
Trump is somewhat miffed with the Saudis for not ramping up production right after he decided not to allow anymore sanction waivers to buyers of Iranian crude this month.
His quest for low gasoline prices continues to make him a dangerous wild card to oil bulls and OPEC.