Trump And OPEC Face Off Over Production Cuts
“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!” President Trump tweeted a few days ago.
Trump is a bit confused on the specific figures – perhaps he was mixing up Brent and WTI – but the message to Riyadh was clear. The American president is pleased with the collapse in oil prices and wants them to go even lower, although he’s light on specifics. “It would probably be incorrect to think that Trump has any particular oil price target other than ‘lower’, or a view on what would be a sustainable or even ‘fair’ oil price,” Standard Chartered wrote in a note on Wednesday. “The aim is simply to maximise the gain to consumers.”
The recent meltdown in oil prices is indeed impressive, but for prices to fall even more, OPEC+ would need to take a pass on a production cut. The problem is that the lower prices go, the more likely the group will agree to curb output.
Russia has been coy in recent weeks about where they stand on a production cut. The thinking in Moscow is a bit more cautious than in Riyadh – engineering a price increase, while good for the budget, also risks sparking more production from U.S. shale.
Moreover, Russia’s currency tends to weaken when oil prices fall, cushioning the blow to Russian oil producers and to the Russian economy. Russian firms can pay expenses in weaker rubles, while making oil sales in stronger dollars. Saudi Arabia, with its fixed exchange rate, doesn’t have this luxury. That makes the Saudis a bit more squeamish on lower prices.
However, Brent crude dipped below $60 per barrel on Friday, a level that starts to make even the Russians uncomfortable. As a result, the pressure is on OPEC+ to cut production.
…click on the above link to read the rest of the article…
