One of President Trump’s tweets last week blasted the OPEC cartel, pointing to it as the cause of “artificially Very High” oil prices. The president’s tweet was a direct message to the group of oil producing countries that their actions to restrict supply are unacceptable and serve as a reminder that prices are set on an unfree market.
We at SAFE agree are encouraged by the president highlighting OPEC’s market influence and believe the administration should remain focused on solutions to mitigate OPEC’s actions and their impact on U.S. consumers and the global economy as gasoline prices continue to rise.
Retail gasoline prices are forecast this year to reach their highest summer average since 2014, potentially wiping out household gains from last year’s tax cut.
Retail gasoline prices are forecast this year to reach their highest summer average since 2014, potentially wiping out household gains from last year’s tax cut. Currently, nationwide gasoline prices average $2.76 per gallon, and will likely rise in the coming weeks ahead of Memorial Day weekend when summer driving season begins. “Without a doubt, there’s probably more gas price increases yet to come,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.com, told Bloomberg, adding that a third of the country will see $3 per gallon in the coming weeks.
The timing of Trump’s tweet was not random. It occurred as oil ministers from OPEC and its non-OPEC partners met in Jeddah, Saudi Arabia at the OPEC/non-OPEC Joint Ministerial Monitoring Committee to discuss policy. Oil ministers shot back at Trump’s tweet and said they would continue coordination to restrict supply. The Saudi Energy Minister, Khalid Al-Falih, went so far to say: “We have seen prices significantly higher in the past, twice as much as where we are today,” he said, attempting to make the case for even higher prices.
The oil producers that are part of the supply deal—which control approximately 55 percent of global oil production capacity—will meet again in June to decide whether to continue to reduce supply for the rest of 2018. Most market watchers expect them to remain committed to cutting output by 1.8 million barrels per day, despite Venezuela’s production rapidly falling, ongoing instability in Libya, Yemen, Syria, and Nigeria, and worries about the global economy.
U.S. crude oil production is forecast to grow by 1.4 Mbd, or 15 percent, this year to the highest annual average ever, and yet OPEC has still succeeded in boosting prices.
It’s clear that the global oil markets have shifted significantly from two years ago, when prices fell below $30 per barrel. We at SAFE have warned against complacency about energy security because America’s dependence on petroleum remains a national and economic security threat, even when prices are low. But now that oil markets are rising, the issue takes on greater urgency. Conventional thinking over the past several years revolved around the belief that OPEC was powerless and shale’s massive growth could prevent future price spikes and solve longstanding energy security problems. But that is not the case: U.S. crude oil production is forecast to grow by 1.4 Mbd, or 15 percent, this year to the highest annual average ever, and yet OPEC has still succeeded in boosting prices, which may continue to rise above expectations.
To counter OPEC’s actions and reduce the U.S. economy’s vulnerability to rising prices, the U.S. has a full suite of solutions, such as the formation of an energy security commission that will investigate how the actions of OPEC members and other petrostates undermine U.S. consumers and producers. “Just as they called out steel and aluminum and created commissions to look at should they put on tariffs or not, clearly oil rises even higher than those, because if oil markets get out of control, and we allow people to continue manipulating it, the entire economy can stop in its tracks,” said Robbie Diamond, SAFE’s CEO and President.
It’s certainly possible that President Trump will put more pressure on OPEC producers if oil prices keep rising.
Other solutions include increasing domestic production, modernizing and strengthening fuel economy standards, adoption of advanced transportation fuels including electricity and natural gas, and the expeditious deployment of autonomous vehicles.
It’s certainly possible that President Trump will put more pressure on OPEC producers if oil prices keep rising. After all, his tweet last week was part of a longstanding pattern of him levying heavy criticisms against the cartel. Before he took office, he tweeted 59 times about OPEC. “Imagine how much money the average American would save if we busted the OPEC cartel,” he said in February of 2012 when prices were $120 per barrel.