Only US President Donald Trump knows why he wants to pick a fight his country already is winning.
“Looks like OPEC is at it again,” he tweeted on Apr. 20 as Organization of Petroleum Exporting Countries ministers met in Jeddah. “With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!”
That the famously, ahem, self-confident Trump should claim to know the morally optimum price of crude oil is not surprising. And the insinuation is correct that OPEC strongly influenced the recent price rise.
Twelve OPEC members are limiting production to lift the crude price, helped by 10 nonmember countries led by Russia.
The collaboration has lasted more than a year and achieved impressively high compliance rates. It might be extended indefinitely.
According to the US Energy Information Administration, diminished supply and increased demand turned a global inventory build averaging 280,000 b/d in 2016 into a 570,000 b/d withdrawal last year. Hence the price increase.
EIA data indicate average OPEC-12 production last year fell by 790,000 b/d from the 2016 average. Subsequent cuts come mainly from distressed producers, especially Venezuela.
Also last year, average US crude production increased by 460,000 b/d. EIA expects US production to be up this year by 1.4 million b/d. March output alone, at 10.4 million b/d, was up 1.1 million b/d against the 2017 average.
US production gains roughly match the OPEC cuts. And they have momentum. EIA’s April projection for average annual 2018 US production, a record-high 10.7 million b/d, is up 400,000 b/d from its January number.
Trump should find appeal in the capture by US producers of market share abandoned by OPEC. The production response is good for the US economy. And it, demand moderation, and supply growth elsewhere will keep crude prices from becoming “Very High!”
The US will fare best if Trump tweets about something else and lets the market work.
(From the subscription area of www.ogj.com, posted Apr. 20, 2018; author’s email: [email protected])