Trump Ask of Saudis Shows Scant Options to Lower Prices at Pump
(Bloomberg) -- President Donald Trump’s request to Saudi Arabia that it increase oil production shows how few options he has to lower prices at the gasoline pumps ahead of elections that are key to continuing his agenda.
Even though the White House Saturday night backed off a tweet by Trump suggesting he’d persuaded Saudi King Salman bin Abdulaziz to effectively increase his OPEC nation’s production to maximum levels, which would have driven a wedge into the oil cartel, it didn’t deny he had made that request.
It was consistent with the president’s awareness that high gasoline prices have long been a campaign weapon to use against the political party in power. U.S. retail unleaded gasoline, including taxes, is about 55 cents a gallon higher than at this same time last year, according to the Energy Information Administration.
Trump, in an interview taped on Friday and aired Sunday on Fox News Channel, put the blame for rising oil prices on OPEC, which he said is “100 percent” manipulating the world market and “must stop.”
“They have to put out another 2 million barrels in my opinion,” he said, adding that his “very good relationship” with the Saudi king and Crown Prince Mohammed Bin Salman would help get the result he wants.
Trump has few other short-term options to drive gasoline prices lower, other than reversing some major foreign policy efforts, including the sanctions instituted on Venezuela.
The president could also influence prices by tapping the nation’s emergency oil reserves, as President Bill Clinton did in the 1990s. But the Strategic Petroleum Reserve, an emergency fuel supply stored in underground salt caverns along the Gulf of Mexico, was established to protect against supply disruptions, and any move to sell that stockpiled crude merely to lower prices could draw intense criticism.
The Trump administration has taken tangible steps to give domestic energy companies access to more oil and make it cheaper to extract, which would help increase production at the cost of at least temporary pain -- in the form of lower prices -- for at some of those companies.
Responding to clamor from oil industry leaders who complained that former President Barack Obama put too many limits on where they could drill, Trump’s Interior Department is developing a plan to dramatically expand offshore oil development and accelerate permitting for onshore energy projects.
But new development in frontier territory, both offshore and within Alaska’s Arctic National Wildlife Refuge, could be years away.
To be sure, Trump has constituents on both sides of the oil price issue.
Higher prices benefit key Trump backers like Harold Hamm, the billionaire chairman and chief executive officer of Continental Resources Inc., largest oil producer in the Bakken basin. But they’ve an outsized impact on the pocketbooks and mood of swaths of the Trump blue-collar political base.
A GasBuddy survey released ahead of the Memorial Day weekend, traditional start to the U.S. “summer driving season,” found a 24 percent decline from a year ago in the percentage of Americans saying they planned a summer road trip. Thirty-nine percent said high gas prices were a factor, twice as high as the year before.
When Republican Mitt Romney attempted to use gas prices against Obama in the 2012 presidential campaign, Trump tweeted, “Gas prices are at crazy levels--fire Obama!” Obama prevailed then, but that hasn’t stopped Democrats from trying to use rising gas prices against Trump now. Senate Minority Leader Chuck Schumer has argued the president should “stand up to OPEC,” while Senator Ed Markey of Massachusetts has introduced legislation to reinstate a ban on U.S. oil exports that was lifted in 2015 after four decades.
The White House late Saturday backed off Trump’s implication that he’d persuaded the Saudis to pump up to 2 million barrels a day more, after the state-run Saudi Press Agency made no mention of an agreement to increase production and didn’t make any reference to 2 million barrels.
King Salman affirmed that Saudi Arabia has that much spare production capacity “which it will prudently use if and when necessary to ensure market balance and stability, and in coordination with its producer partners, to respond to any eventuality,” according to the White House statement.
Saudi Arabia has the capacity to pump a maximum of 12.04 million barrels a day, according to the International Energy Agency. The kingdom pumped slightly more than 10 million barrels a day in May.
Also see: Unexpected oil losses swamp Saudi production surge
At a meeting of the Organization of Petroleum Exporting Countries in Vienna in June, Saudi Arabia -- the group’s largest producer -- joined other members in agreeing to scale back its over-compliance with output cuts in place since the beginning of 2017. Saudi Energy Minister Khalid Al-Falih indicated the group’s action would add nearly 1 million barrels a day to the market.
The delicate accord was cobbled together to satisfy some producers, like Iran and Venezuela, which wanted to limit output, and others, like the Saudis, which sought to ease away from the supply cuts.
If the Saudis had agreed to Trump’s request, “that means he is calling on them to walk out from OPEC,” Iran’s OPEC governor Hossein Kazempour Ardebili said in an interview. “There is no way one country could go 2 million barrels a day above their production allocation unless they are walking out of OPEC.”
The OPEC curbs were intended to help drain a global oil glut, a goal that’s largely been achieved, though supply disruptions are now adding upward pressure to prices. Venezuela is in the midst of an economic crisis, which has caused oil production to plummet. In Libya, where a dispute over control of key ports has hindered output, the Arabian Gulf Oil Co. on Saturday halted 220,000 barrels a day of production, according to a person familiar with the outage.
Brent crude, the global oil benchmark, topped $80 a barrel in mid-May, the highest level since November 2014. It closed Friday at $79.44 a barrel.
©2018 Bloomberg L.P.