Typical. You go to the trouble of organizing a big get-together in Abu Dhabi to help shore up oil prices, complete with press conferences and the usual nod-and-a-wink guidance. And what happens? President Donald Trump rebuts it with a tweet.
There are several noteworthy aspects to this latest official communication from the White House. It rather contradicts itself: If supply is ample enough that prices ought to be much lower than they are, then what’s the problem? Still, I’m guessing this isn’t the first time you’ve read a tweet (by Trump or anyone else) with leaky logic.
More importantly, it comes after oil prices have already dropped by about $15 a barrel, almost a fifth, over the past month or so to around $70. Meanwhile, the midterm elections are over. As I wrote here, in the run-up to those, Trump tended to tweet about oil and OPEC when prices were moving sharply higher or were closer to $80:
Trump may well have simply been reacting to news that Saudi Arabia, along with fellow OPEC members and a coalition of other oil exporters, is likely to cut production soon. Even though oil prices have been coming down, why not push for even steeper declines with a few choice characters?
If anything, though, the tweet could make it even more likely that cuts happen.
The drop in oil prices reflects surging supply in the U.S. as well as intimations of weakness in demand, particularly in the gasoline market. OPEC has struggled to reimpose its authority completely in the face of shale oil’s resilience, and there were very strong hints at its latest gathering that demand estimates will be revised lower again (the organization’s next monthly report is due Tuesday). As I wrote here, the conflicting needs of the group’s members and partners, along with the changing geopolitical backdrop and concerns about long-term demand for oil, have rendered OPEC’s blunt tools much less effective.
Talking up the market is one of those tools, and it wasn’t doing much for oil prices Monday anyway, even before Trump’s retort undercut it. One of the features of the recent slide in oil prices has been the withdrawal of long money from the futures market and a notable expansion of short positions.
The collapse of speculators’ optimism is particularly striking when you look at the ratio of long positions to shorts in crude oil and gasoline contracts:
OPEC and chums need to persuade some of that money back into the market. But as Kevin Book of ClearView Energy Partners put it to me on Monday afternoon, “The producers and the president seem to be playing a Twitter tug-of-war using speculative interest as the rope.” The oil exporters may feel they have to back up words with action and cut production in order to pull things back their way — even if it risks even greater blowback stateside.