What stands behind Trump’s call to lower oil prices?

Oil&Gas Materials 28 February 2019 10:49 (UTC +04:00)

Baku, Azerbaijan, Feb.28

By Leman Zeynalova – Trend:

Rising crude oil prices on world markets mean rising gasoline prices for US consumers and President Trump prefers falling prices for US motor drivers for obvious political reasons, Francis Perrin, Senior Fellow at the Policy Center for the New South (Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.

Trump, in the latest in a series of tweets about oil prices since April 2018, wrote on Monday: “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!”

A Gulf OPEC source told Reuters that OPEC and its allies will stick with their agreement to cut oil supply, pushing for more adherence despite a demand by US President Donald Trump that the producer group ease its efforts to boost crude prices.

“There is a great deal of subjectivity in President Trump's statements. Any level of oil prices can be considered as too high by someone and too low by another. On 27 February Brent price was about $66 per barrel. It is of course higher than about $53-54/b at the end of 2018 and much higher than less than $30/b at some point of January 2016 but it is much lower than the level of more than $100/b (and often more than $110/b) between 2011 and the end of the first half of 2014. The average level of Brent prices over the past five years, from 2014 to 2018, was $64/b. The present price is thus not particularly high as compared with this recent period,” said Perrin.

He said President Trump does not like to see rising oil prices and that is the case since the beginning of this year. “Brent price increased by more than 20 percent since December 31 last year. Rising crude oil prices on world markets mean rising gasoline prices for US consumers and President Trump prefers falling prices for US motor drivers for obvious political reasons.“

The expert pointed out that the situation of the US is rather complex as far as oil prices are concerned because this country is at the same time the world's leading oil producer and the leading oil consumer.

“Higher oil prices are good for the US oil industry but rather bad for some other sectors of the US economy. President Trump is stressing, especially since 2018, that it wants to protect the US economy and US consumers from high oil prices,” he added.

Perrin said OPEC does not of course want prices which are too low but it does not like prices which are too high.

He believes that high prices can have a negative impact on world economic growth, which could have itself a negative impact on world oil demand.

“High prices, if sustained over time, could also push consumers to save oil, that means to consume less oil, and to try to substitute other energy sources to oil, which would not be in the best interests of the organization and of its members. As seen last year OPEC did not hesitate to increase its output from 1 July 2018 until 31 December 2018 after 18 months of production cuts in order to prevent oil prices from rising too much at the time,” said the expert.

It is not easy to say exactly which level of oil prices would be dangerous for the world economy, according to Perrin.

“Clearly we are not presently at such a level. Prices much higher than $80/b could be detrimental to economic growth but OPEC (especially Saudi Arabia) and non-OPEC producers which are cooperating with it since the end of 2016 would very likely increase their output to prevent this level of prices to become reality under the present circumstances.”


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