On Monday morning, as part of the administration’s plan to reduce Iran’s oil exports to zero, the White House announced President Trump had “decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May,”. Identifying the United States, Saudi Arabia and the UAE, as “three of the world’s great energy producers,” the White House statement added that these three producers, in conjunction with “our friends and allies,” will work to make sure the oil market is “adequately supplied.”
Following the White House announcement, the President tweeted that “Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil.”
The oil market’s immediate reaction to the announcement underlines the fact that oil prices and world politics are inextricably linked
The oil market’s immediate reaction to the announcement underlines the fact that oil prices and world politics are inextricably linked. West Texas Intermediate (WTI) crude traded above $65.50 per barrel on Monday morning—the first time it has traded above this level since October 31 last year. Prices only fell after the Trump administration issued waivers to eight key customers of Iranian oil, citing a need to keep oil prices from rising.
A number of factors are driving oil prices higher, including sanctions on Venezuelan oil exports, armed conflict in Libya, and the ongoing coordinated cuts of OPEC and allies including Russia. However, the decision not to reissue the SREs is “a bullish surprise for the market,” according to Petromatrix analyst Olivier Jakob. Speaking to CNBC, Jakob added that “this does bring a lot more uncertainty in terms of global supplies.”
Rising global oil prices also have had an effect on the cost of U.S. gasoline. Last week, the regular U.S. gasoline cost $2.82 per gallon—up 26 percent from the start of the year. Prices at the pump are only 14 cents away from the 2018 weekly high of $2.96 per gallon consumers experienced in May. As a result of the decision to not reissue the SREs, we can expect three-dollar gallon average gasoline over the next week or two. If the U.S. breaches $3.01 per gallon of gasoline, it will be the highest gas price since November 2014, at which point OPEC decided to maintain high levels of oil production amid a serious price rout. In addition, without any major changes in fundamentals, the rise in prices can be expected to continue into the Memorial Day weekend, when many American drivers are expected to begin summer travel.
The Trump administration already has taken steps to try and temper rising oil prices. Analysts told Platts on Friday that the administration’s apparent signal of support for Libyan Field Marshal Khalifa Haftar and his Libyan National Army over the UN-backed Government of National Accord has been motivated by the president’s concerns over the impact of supply outages on oil and U.S. gasoline prices. The White House reported that the president had a phone call with Haftar earlier that week, recognizing his efforts in “securing Libya’s oil resources.”
As the United States is the world’s largest oil consumer, with a transportation system that is 92 percent dependent on oil, U.S. economic and energy security is tied closely to the price of crude
As the United States is the world’s largest oil consumer, with a transportation system that is 92 percent dependent on oil, U.S. economic and energy security is tied closely to the price of crude. The market reaction to the Trump administration’s SRE decision, and the White House’s potential decision to switch allegiances in Libya, provide yet another reminder that U.S. foreign policy is frequently reordered by America’s singular reliance on oil.