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President Donald Trump blew up oil producers in the Middle East on Twitter on Thursday, saying they "continued to press for higher and higher oil prices!" – But oil prices are at their current level because of US demand and the hard line of the Trump administration on Iran, experts say the oil market. In addition, with the United States being the world's largest oil producing country, lower prices could hurt US companies – and workers – in the sector.
In a familiar chorus on Thursday morning, Trump tweeted: "We are protecting the Middle East countries, they would not be safe for a long time without us, and yet they continue to demand higher and higher oil prices! monopoly of OPEC must bring down prices now! "
In fact, this is largely a demand-driven price increase due to strong US and global economic growth, "said Pat McKinnon, Senior Director, Euler Hermes North America. "The price increase we see here is fundamentally demand-driven," he said.
"The global economy has actually done better than most people in the last few years, which obviously means that demand is higher. As a result, you have a tighter oil market than you probably expected a few years ago, "said Jacob Kirkegaard, senior scientist at the Peterson Institute for International Economics.
In fact, it is unlikely that the Organization of the Petroleum Exporting Countries will comply with Trump's request – which they probably could not do, even if they were inclined to do so.
"The production capacity of OPEC members is very limited and US producers are already limited by their production capacity, especially in West Texas," said Patrick DeHaan, Petroleum Analysis Manager at GasBuddy.
The backdrop to all this was the dramatic, and largely surprising, emergence of the United States as an oil superpower, a development supported by the gradual rise in prices. According to a note released by the Department of Energy last week, "the United States has probably overtaken Russia and Saudi Arabia to become the world's largest crude oil producer earlier this year, according to preliminary estimates."
"In itself, [this] is an absolutely remarkable development, "said Kirkegaard.
The lower price requested by Trump – assuming that OPEC can even meet this demand – would mitigate this trajectory.
"I do not know why he would do anything here," McKinnon said. "This allows us to have a strong production community in the United States. This allows us to be the world's largest producer at this stage, "he said. "In this case, the market is sort of in a good balance now."
Experts point out that another factor contributing to current prices is the withdrawal of the Trump administration from the Iranian nuclear deal.
"His hard line on Iran will cost Americans more money," DeHaan said. At present, he estimated that Iran's effect contributed only about a nickel to today's prices on the average gas gallon. "It's more of a risk premium than anything else," he said.
But DeHaan predicted that this could change after the OPEC meeting later this year. "I think at this meeting in late November, they will look very closely at the impact of sanctions," he said, and that any surprise could trigger a shock in the market.
Of course, if Iranian production continued unabated, this risk premium – and the threat of higher prices coming – would no longer be at stake, but experts admit that this is unlikely to happen.
"One of the ways he could try to drive down prices would be to easily go to Iran," Kirkegaard said. "He can not have his cake and eat it too, so to speak."
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