Apr 23, 2018

The possible meanings of Trump's OPEC tweet

President Trump's decision Friday to burst like the Kool-Aid Man into oil market debates — bashing OPEC in a tweet over "artificially high" prices — has generated a burst of analyses about what motivated his comments.

Why it matters: The tweet could herald a newly-aggressive posture toward the cartel as it weighs the longer-term future of the production-limiting deal with Russia that's currently slated to last through 2018.

What they're saying . . .

Gasoline prices: One through-line in the analysts' reactions is that Trump could be seeking to preemptively steer and deflect consumer ire at rising gasoline prices heading into summer and election season.

  • The Energy Information Administration forecasts that regular gas will average $2.74 nationwide in the April-September driving season, compared to $2.41 last year.
  • A related thing: When it comes to what's good for U.S. oil producers (higher oil prices) and what consumers want (low gasoline prices), Trump will choose the latter.
  • "[P]olitical mathematics tends to be of a first-order nature: high oil prices only directly benefit a small number of voters, but low gasoline prices directly benefit all voters," ClearView Energy Partners said in a note.

Iran and Venezuela: The tweet could be a further sign that Trump is preparing to end waivers of Iranian energy sanctions in May, which would remove some barrels from the global market (there's lots of debate about how much), thereby putting more upward pressure on prices.

  • "I think the market should take it as another indication that [reimposition of sanctions] is going to happen," said Hedgeye Risk Management's Joe McMonigle in video commentary on their site.
  • What's next: "The implications of it are going to be, I think, pressure on by Trump on OPEC, and Gulf producers in particular who are aligned with him on this Iran policy to increase production because of the disruption," he said.
  • On a related note, the administration may impose sanctions against Venezuela's oil sector.

Congress and Aramco: The Rapidan Energy Group, in a short note, said the jab at "artificially high" prices carries an "implied threat" of exhuming legislation floating around Congress for almost two decades that would prompt the U.S. to sue OPEC members under anti-trust law — a bill known as "NOPEC."

  • "Any presidential support for the NOPEC bill — or even ordering an investigation of market manipulation — would make Riyadh more gun shy about listing Aramco in New York."

LOL, nothing matters: ClearView has a worthwhile disclaimer on their note: "In the absence of further commentary or a detailed explication by the President’s advisors, we are inclined to suggest that sometimes a tweet is just a tweet."

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