(Bloomberg) -- U.S. President Donald Trump slammed OPEC for inflating oil prices after the cartel showed a willingness to further tighten crude markets.
“Looks like OPEC is at it again,” Trump said on Twitter, not long after energy ministers finished their meeting in Jeddah, Saudi Arabia. “Oil prices are artificially Very High! No good and will not be accepted!”
The president’s ire followed a stream of bullish signals from a meeting of oil producers in Saudi Arabia, chiefly from the kingdom’s Energy Minister Khalid Al-Falih. The crude glut that’s weighed on prices for three years has almost been wiped out by OPEC’s production cuts, but instead of celebrating victory the group is finding reasons to keep going and drive fuel inventories even lower.
Brent crude, the international benchmark, fell about 69 cents at the time of the tweet, before trading down 0.8 percent at $73.17 a barrel as of 2:31 p.m. in London.
The purpose of the shift in OPEC’s target was clear: There’s capacity for prices to rise even further beyond their current three-year high, Al-Falih said.
“We have seen prices significantly higher in the past, twice as much as where we are today” and the global economy has the ability to absorb costlier crude, the Saudi minister said.
International oil prices surged to almost $75 a barrel this week and U.S. gasoline is the highest in almost three years. Yet OPEC’s choke-hold on its own production is only getting tighter. Saudi Arabia is said to desire crude closer to $80.
The closest U.S. allies within the Organization of Petroleum Exporting Countries rejected Trump’s accusation. Prices aren’t artificially high, said United Arab Emirates Oil Minister Suhail Al Mazrouei. Saudi Arabia’s Al-Falih echoed that view.
“We are doing our role to correct the market,” Al Mazrouei said. “There are many things affecting the market, not just supply and demand,” including geopolitics that are beyond OPEC’s control, he said.
Russia, Saudi Arabia’s most important ally in the production cuts, gave its backing to continuing the cuts until their end-2018 expiry. There’s no obligation to stop just because the pact’s initial goal -- stockpiles in industrialized nations back in line with the five-year average -- is at hand, said Energy Minister Alexander Novak.
Novak also rejected Trump’s accusation, while also arguing the group’s production cuts have helped U.S. producers to boost output. "The deal helped to restore the industry of Texas," he said in an interview with Bloomberg television.
Soaring U.S. shale production has been a nagging concern for OPEC and its allies, but the group’s key players appear to be more fixated on the immediate benefits of high crude prices. Saudi Arabia needs to cover weighty domestic spending and attract investors to a partial sale of its state oil company, Aramco. Russia is relishing its new role as a major Middle East power broker, while also enjoying bigger financial gains than anyone from the accord.
“Russia is keeping all options open and Saudi Arabia is talking about a 2019 extension,” UBS Group AG analyst Giovanni Staunovo said by email.
Novak wouldn’t rule out some easing of the production cuts this year, but said it would depend entirely on the situation in the market. For now, the group is cutting ever deeper, and Saudi Arabia’s Al-Falih chided nations that haven’t been implementing their fair share of the curbs at the opening session of the Jeddah talks. Iraq and Kazakhstan have pledged to improve their compliance, according to the closing statement from the meeting.
Overall, OPEC and its allies cut 49 percent deeper than the agreed 1.8 million barrels a day in March, according to the statement. That’s the biggest reduction ever and the seventh month the group has surpassed its target, Novak said.
Much of those additional reductions weren’t intentional, according to the International Energy Agency. An economic crisis and “chronic mismanagement” dragged Venezuela’s output to a multi-decade low, while Angola lost production from aging fields. Others were temporary, such as field maintenance in Algeria. The involuntary cuts may keep getting deeper if Trump reimposes sanctions on Iran next month.
Ministers seemed to embrace the notion of a significantly tighter oil market. Saudi Arabia in particular gave a strong indication that higher prices wouldn’t be a bad thing. Every year the world needs to develop new daily production capacity of about 4 million to 5 million barrels and invest hundreds of billions of dollars, but that’s not happening right now, Al-Falih said.
©2018 Bloomberg L.P.