As oil hovers at $50 a barrel, Donald Trump tries to push the price lower

HOUSTON—Oil prices have plunged by 25 percent in the last month while the cost of gasoline has tumbled to as little as $2 a gallon in several states. President Donald J. Trump is pushing for even lower prices, calling it “a big Tax Cut for America and the World.”

But Trump is playing a tricky game. The United States became the world’s largest oil producer this year, and a collapse in prices could hurt scores of businesses and hundreds of thousands of workers in the energy and manufacturing industries. The damage would be particularly severe in states like Texas, Oklahoma and North Dakota that voted for the president.

Oil, which is trading at around $50 a barrel, is close to an economic sweet spot. Prices are not so high that they are a burdensome tax on consumers and businesses and not so low as to bankrupt energy companies and strain the finances of major oil exporters like Saudi Arabia and Russia.

“Trump tweets as if he has a joystick and he has everything under his command like he is playing one of these video games,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service.

Trump is expected to discuss oil prices with the crown prince of Saudi Arabia at the Group of 20 summit at the end of the week. Those talks will come days before the Organization of the Petroleum Exporting Countries (Opec) is expected to set production targets.

If he persuades major oil-producing nations to maintain their current output, “oil prices could go down to the low 40s,” Kloza said.

That kind of drop would have been an unalloyed economic boon for the United States just a dozen years ago, when domestic oil production was declining and the country was becoming increasingly dependent on unstable or unfriendly countries like Venezuela and Nigeria.

But lower prices will have a more ambiguous impact now. After the boom in drilling in shale fields, oil production in the United States has more than doubled since 2008, to upward of 11 million barrels a day now, and the country has become a major exporter. Exxon Mobil, Chevron and other oil companies have made huge investments and employ tens of thousands of workers across the country.

After prices began to slide in late 2014, more than 160,000 oil workers lost their jobs. Hundreds of smaller drillers went bankrupt, putting pressure on banks and investors. Manufacturers and other businesses that supply the energy industry also took a hit.

At the time, Opec decided not to cut production in order to retain market share and undercut US shale producers. That decision set off a three-year slump in prices.

“Of course I’m concerned because the price of oil is dropping like crazy right now,” said Darlene S. Wallace, president of Columbus Oil, a small Oklahoma producer. “I was making a profit this year for the first time in four years, and now it doesn’t look like it will end up that way toward the end of the year.” But the drop in prices has clearly been a boon to people and businesses that use oil.

Americans consume roughly 400 million gallons of gasoline a day, so every time prices fall by a penny they save about $4 million. The average retail price for regular gasoline is about $2.50 a gallon, according to AAA, about the same as it was a year ago. But that is $1.60 a gallon less than it was a decade earlier, when the shale-oil boom was just starting.

In addition to the benefits of lower prices for consumers, Trump appears to want a well-supplied oil market so he can press countries to cut their imports from Iran without worrying about running out of fuel. Lower energy costs should also tamp down inflation, which, in turn, would help keep interest rates low at a time when some analysts fear an economic slowdown.

The president might have some success in getting Saudi Arabia not to cut oil production because of how he has handled the killing of journalist Jamal Khashoggi in the Saudi Consulate in Istanbul. Thankful for Trump’s public support, the Saudi crown prince, Mohammed bin Salman, might be more willing to tolerate low oil prices than he would have been otherwise.

Russia also appears to be in no hurry to cut production, which is at the record level of roughly 11 million barrels a day. Igor Sechin, chief executive of the Russian oil company Rosneft and an influential ally of President Vladimir Putin, has aggressively promoted drilling at home and abroad. Putin recently said he was satisfied with the current price of oil.

Given all those political calculations, Kloza and other energy analysts say that Saudi Arabia is likely to cut production modestly and lobby other producers to do the same. At current prices, Saudi Arabia, which is heavily dependent on petroleum exports, can pay its bills and most oil companies can make a profit. (The global price of oil is about $60 a barrel.)

“I think everybody is keen on stability,” said Sadad Ibrahim Al Husseini, a former executive vice president of Saudi Aramco. He expects Opec will cut production by at least 1 million barrels a day, roughly 1 percent of global supply.



Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Previous Article

WHO: Congo’s Ebola outbreak now second largest in history

Next Article

Next U.S. moon landing will be by private companies, not NASA

Related Posts