President Trump’s tweet Friday morning shifted the debate about rising gasoline prices, the effects on American consumers, and OPEC’s role in the global oil markets. Trump blasted OPEC in a tweet for artificially inflating oil prices, adding: “No good and will not be accepted!”
With their stated goal of reducing the glut mostly complete, OPEC and its non-OPEC allies, including Russia, are still committed to cutting output, even if it risks higher prices. OPEC has institutionalized its cooperation with Russia and other states—which represent 55 percent of daily supply—and successfully cut inventories from a surplus of approximately 400 million barrels to just 43 million barrels, pushing prices to the mid-$70s, the highest levels since 2014.
OPEC’s actions are causing consternation for consumers. For U.S. households, the need to cover higher gasoline costs could negate the effects of President Trump’s recent tax cut. Gasoline prices this summer are expected to be the highest since 2014, and U.S. households will spend $400 more on average at the pump in 2018 alone.
The Russian minister tried to take credit for restoring Texas’ oil industry.
Even though OPEC has publicly said that its members are seeking to stabilize the global market, producers are discussing keeping supply cuts in place into 2019, risking even higher prices. Industry sources have reportedly said that the Saudis are targeting $100. The Kingdom’s Energy Minister Khalid Al-Falih said Friday in Jeddah, Saudi Arabia at the Joint OPEC/Non-OPEC Ministerial Monitoring Committee that the global economy can absorb higher prices even beyond current levels. “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 higher prices. The UAE oil minister deflected blame elsewhere: “We are doing our role to correct the market,” Suhail Al Mazrouei Al-Mazrouei said. “There are many things affecting the market, not just supply and demand.” Meanwhile, the Russian minister tried to take credit for restoring Texas’ oil industry.
The supply cuts are occurring at a perilous time in the oil market with growing geopolitical risks.
The supply cuts are occurring at a perilous time in the oil market with growing geopolitical risks. Venezuela’s crude output is falling sharply due to economic instability, the conflict between Yemen and Saudi Arabia has escalated as of late, and other flashpoints such as Libya and Syria could worsen tensions in the Middle East and North Africa.
With Trump’s tweet now bringing attention to high gasoline prices, OPEC, and U.S. energy security, it is an ideal time to put in place concrete solutions which include: Increasing domestic drilling; maintaining strong fuel economy standards by using the current rulemaking period to strengthen and modernize regulations; adopting alternative fuel vehicles; and responding to OPEC by establishing a commission that will investigate how the cartel’s actions and their effects on U.S. interests.