President Donald Trump stopped the oil rally in its tracks after tweeting that “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices. We will remember. The OPEC monopoly must get prices down now!” Yet, was the President just talking to OPEC or was it really directed at Saudi Arabia? Saudi Arabia has sent strong signals that they are happy with where oil is and would feel comfortable will oil above $80 a barrel. That, of course, did not sit well with President Trump who has executed oil sanctions on Saudi Arabia’s adversary Iran, incurring political risk for himself and his party as we get closer to the Mid- Term elections in the United States.
The President is suggesting that the U.S. has done its part defending the agreement that the Saudi’s made with President Franklin D Roosevelt, and especially now when the U.S. is using its power and influence to get the entire world to stop buying Iranian oil, so they will not be able to easily fund the proxy wars they are fighting against Saudi Arabia in Yemen and in Syria. Now after all the U.S. support in those efforts, the President wants the Saudis to ramp up output to make up for what we are losing from Iran.
Yet, that may be a futile effort. If the Saudi’s look to go it alone and try to raise their output, they would have to exceed their record production that they have had a very hard time maintaining. In fact, it is likely that if the Saudi’s raised output by 1.5 million barrels a day they would be tapped out leaving no spare production capacity in America’s long-time strategically.
That’s why the oil market did not break as bad as it did after the July 4th Presidential tweet against OPEC, which helped start an almost $10 a barrel correction. Of course, the timing was different and the Fourth Of July is the traditional peak of the summer driving season. This time the President is trying to shake down OPEC ahead of refinery maintenance season, but with refiners trying to max out as much diesel as they can, it might not have the same bearish impact as the tweet had before.
