Is Trump's oil policy going to backfire?

[CMOP + 227]

Donald Trump has attacked Iran, OPEC, Russia and China with sanctions, trade wars and speeches - now four of the most powerful players in the oil market have a chance to drive oil prices higher before the key November elections, hurting Trump's ability to drive policy in 2019

[ceo_energemsier + 1,818]

53 minutes ago, CMOP said:

Donald Trump has attacked Iran, OPEC, Russia and China with sanctions, trade wars and speeches - now four of the most powerful players in the oil market have a chance to drive oil prices higher before the key November elections, hurting Trump's ability to drive policy in 2019

OPEC's biggest producer and the most influential, KSA- will do what is in the best interest of their market share and their relationship with the US . If  needed the Saudi's will pump more oil to make up for sanctioned Iranian barrels. As much as it may appear that they want much higher oil prices, but that will not be good for long term demand. 

More to follow!!!

[Dan Warnick + 6,100]

57 minutes ago, CMOP said:

Donald Trump has attacked Iran, OPEC, Russia and China with sanctions, trade wars and speeches - now four of the most powerful players in the oil market have a chance to drive oil prices higher before the key November elections, hurting Trump's ability to drive policy in 2019

That is exactly the same point I made earlier today on another thread.  When you expand the question to include all 4 players, it makes even more sense.  Either way, I don't think Trump cares as much as he lets on.  All he needs to do is show publicly that he is fighting for the American public and against unfair practices by foreign entities, and he wins.  If the price of oil goes up and Texas, for example, loves him, he wins.  What's not to like?

[Dan Warnick + 6,100]

5 minutes ago, ceo_energemsier said:

OPEC's biggest producer and the most influential, KSA- will do what is in the best interest of their market share and their relationship with the US . If  needed the Saudi's will pump more oil to make up for sanctioned Iranian barrels. As much as it may appear that they want much higher oil prices, but that will not be good for long term demand. 

More to follow!!!

True, and KSA had better be careful that the U.S. does not find out if they are in cahoots (yes, I said that) with the others to cheat the U.S., which would be seemingly highly likely.  Donald just threatening to move the 5th fleet out of the region could be very costly indeed for the Saudis and all others in the region.  You know, take the playground monitors off the playground during recess.

[ceo_energemsier + 1,818]

7 minutes ago, Dan Warnick said:

That is exactly the same point I made earlier today on another thread.  When you expand the question to include all 4 players, it makes even more sense.  Either way, I don't think Trump cares as much as he lets on.  All he needs to do is show publicly that he is fighting for the American public and against unfair practices by foreign entities, and he wins.  If the price of oil goes up and Texas, for example, loves him, he wins.  What's not to like?

Texas is winning and is happy 🍾

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U.S. crude oil exports of nearly 1.8 million barrels a day were the top petroleum product export in the first half of 2018.

Crude oil exports surpassed hydrocarbon gas liquids or HGL exports of 1.6 million barrels a day, according to a report by the Department of Energy. HGLs are defined as natural gas liquids like ethane, propane and olefins like ethylene, and propylene used in plastics manufacturing.

U.S. ports and crude oil pipeline and storage companies have been racing to build out pipelines, gathering systems, storage and export terminals along the Texas Gulf Coast to meet the demand for exports.

The largest market for crude oil exports between Jan. and June 2018 was China, which took in 376,000 barrels of oil a day. The second largest importer was Canada at 334,000 barrels a day.

The Asian market was the largest for imported U.S. crude at 744,000 barrels a day, while Europe came in second at 556,000 barrels a day.

In June a new monthly record for U.S. crude oil exports was made when the country exported 2.2 million barrels a day, according to the Energy Department.

Total crude oil and petroleum product exports for the first six months of 2018 hit a record 7.3 million barrels a day.

[ceo_energemsier + 1,818]

8 minutes ago, Dan Warnick said:

True, and KSA had better be careful that the U.S. does not find out if they are in cahoots (yes, I said that) with the others to cheat the U.S., which would be seemingly highly likely.  Donald just threatening to move the 5th fleet out of the region could be very costly indeed for the Saudis and all others in the region.  You know, take the playground monitors off the playground during recess.

The Saudi's know that so do they neighbors like Q8, UAE , Jordan etc. Without US support they would all be facing serious threats ( as Q8 did back in the 90s invasion by their friendly neighbor)

[jaycee + 348]

25 minutes ago, Dan Warnick said:

True, and KSA had better be careful that the U.S. does not find out if they are in cahoots (yes, I said that) with the others to cheat the U.S., which would be seemingly highly likely.  Donald just threatening to move the 5th fleet out of the region could be very costly indeed for the Saudis and all others in the region.  You know, take the playground monitors off the playground during recess.

Can you tell me how America would benefit from such a strategy? The scenarios I see are all negative.

1. War breaks out in the region oil prices shoot up causing a worldwide recession.

2. Russia steps in being a major exporter of oil and starts offering oil to countries to get them to agree to its foreign policies. France and Britain are already cooperating with them to bypass Iranian sanctions so not a huge leap of imagination. This will leave the US even more isolated with less influence in the world.

3. No war, Russia becomes even more friendly with Saudi and provides security for them instead of the US and forces them to cooperate in managing world oil prices for their 'mutual' benefit.

The last is the most likely I suggest as Russia has always tried to get more influence in the Middle East and is slowly doing that, this strategy would just finish it off nicely for Russia and they are already well in with Saudi as part of OPEC+.

 

[Tomasz + 1,608]

I dont see it. Russian output is currently on post-soviet high and China cut imports from Iran by  half. Its strange from historical perspective but the rogue state in oil case is currently rather KSA not Russia or China.

And the real problem is current US administration= you just cant loose from oil market more than 2 milions barrels per day in situation of both healthy demand because of economic boom and very restricted, probably even declining world supply apart from only a couple of countries with sare capacity because of underinvestment without a  significant price spike.

Thats Iran's wild card because I think this quater we will have the tightest oil market in 10 years after economic crisis in 2008. Its not a good situation from long-time perspective even for  oil producers but you cant avoid it. 

Trump only wants  to postpone the problem just after the elections in November because he will have 2 more years to solve the problem.

Edited October 2, 2018 by Tomasz

[J Owens + 45]

1 hour ago, ceo_energemsier said:

OPEC's biggest producer and the most influential, KSA- will do what is in the best interest of their market share and their relationship with the US . If  needed the Saudi's will pump more oil to make up for sanctioned Iranian barrels. As much as it may appear that they want much higher oil prices, but that will not be good for long term demand. 

More to follow!!!

I understand the long-term issues you're referring to but the elections are surely close enough to come under 'short-term strategies' for the 4 actors mentioned? They can easily agree to boost supply after the elections have taken place and not hurt the market or their share. I'd have to say that strategically for the 4 actors mentioned it makes sense limiting Trump's power (if that is indeed the outcome of higher oil prices during the elections) or at very least any of those 4 actors can use higher oil prices as a geopolitical bargaining chip before the elections. 

Trump could turn this around I suppose, come to some sort of agreement with Saudi Arabia to boost supply and lower prices just before the elections - but I don't see Saudi Arabia bending to U.S. demands over this.

[PeterfromCalgary + 60]

Saudi Arabia and Russia have too much at stake in keeping their oil industry healthy in the long run to play short term political games with it.  Also Trump who is skeptical of global warming predictions is good for oil and gas demand.  Just look at his roll back of Obama era fuel efficiency standards.

I suppose China could try to manipulate oil prices up as retaliation for Trump's Tariffs.  However,  I don't see any evidence of that yet and the midterms are only 34 days away.

Edited October 2, 2018 by PeterfromCalgary

[Jan van Eck + 7,558]

You folks might ask yourselves: does The Donald actually have an "oil policy"?  Or is what passes for "policy" nothing more than a series of inconsistent daily tweets, all over the place?  

There is plenty of oil; the world is awash in the stuff.  Anybody who thinks that Iranian oil is going to get locked into the ground is not being realistic.  All of their production is going to be sold.  The real question is:  how steep of a Discount does Iran have to offer its buyers in order to move the product.  That is to say:  how much is the fee to smuggle the stuff? 

The big Trump Oil Embargo is going to be a bust.  Even Washington knows this; the real issue is: by how much can Washington force down the actual receipts of Iran for that oil?  If Iran has to put a big bag of coin on the table to persuade a smuggler to put his tanker out there to sneak the oil, then that is money that Iran does not get, and that hurts Iran - which is the whole idea of the Embargo.  But the same amount of physical oil is going to get out there into the world market.  Some will probably end up in US refineries!  Hey, why not?

Once it sinks in with the day traders on the oil exchanges that Iranian oil is all getting to buyers in places like India, just at a nice discount, their ideas of "embargo" and "supply shortage" will evaporate, and the trading price of oil will collapse.  Maybe the BBC will do a documentary on phantom tankers with nameplates held on with quick-change thumbscrews, a Liberian tanker one day,  then sailing as if from Valletta the next, with all these guys painting the smokestack at night - hey, the CIA would be proud. 

Edited October 3, 2018 by Jan van Eck
typing error

[J Owens + 45]

18 hours ago, PeterfromCalgary said:

Saudi Arabia and Russia have too much at stake in keeping their oil industry healthy in the long run to play short term political games with it.  Also Trump who is skeptical of global warming predictions is good for oil and gas demand.  Just look at his roll back of Obama era fuel efficiency standards.

I suppose China could try to manipulate oil prices up as retaliation for Trump's Tariffs.  However,  I don't see any evidence of that yet and the midterms are only 34 days away.

It seems you were right, Saudi Arabia and Russia do have too much at stake!

https://www.reuters.com/article/us-russia-saudi-oil-exclusive/exclusive-saudi-arabia-russia-agreed-in-september-to-lift-oil-output-idUSKCN1MD0Y8

They reportedly had a 'secret deal' to boost production and called Trump to inform him. Brent is over $85 at the moment though....

[ceo_energemsier + 1,818]

No backfiring here!

_____________________________________________________________

Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan said.

U.S. President Donald Trump has blamed the Organization of the Petroleum Exporting Countries (OPEC) for high crude prices and called on it to boost output to bring down fuel costs before the U.S. congressional elections on Nov. 6.

The deal underlines how Russia and Saudi Arabia are increasingly deciding oil output policies bilaterally, before consulting with the rest of OPEC.

The sources said Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak agreed during a series of meetings to lift output from September through December as crude headed towards $80 a barrel. It is now over $85.

“The Russians and the Saudis agreed to add barrels to the market quietly with a view not to look like they are acting on Trump’s order to pump more,” one source said.

“The Saudi minister told (U.S. Energy Secretary Rick) Perry that Saudi Arabia will raise output if its customers asked for more oil,” another source said.

Originally, the two countries had hoped to announce an overall increase of 500,000 barrels per day (bpd) from Saudi-led OPEC and non-OPEC Russia at a gathering of oil ministers in Algiers at the end of September.

But with opposition from some in OPEC, including Iran which is subject to U.S. sanctions, they decided to defer any formal decision until a full OPEC meeting in December.

PERRY LOOPED IN
Since then, Reuters has reported that Riyadh planned to lift output by some 200,000 bpd to 300,000 bpd from September to help fill the gap left by lower Iranian output due to the sanctions.

Russian output rose 150,000 bpd in September.

“I would expect Russia’s oil production will hover at around 11.4 to 11.6 million bpd until the end of 2018 and may increase further to 11.8 million bpd later on in 2019,” a source at a major Russian oil company said.

Russian produced 11.36 million bpd in September, up from 11.21 million bpd in August, Energy Ministry data showed.

Perry was made aware of the Saudi-Russia plan to lift output before the Algiers gathering, meeting with Falih three times in September and Novak once. The three did not meet together.

Perry’s spokeswoman Shaylyn Hynes did not comment on details of the talks but said the energy secretary, “continues to be engaged with leaders from other major oil producing nations and remains confident in their ability to boost output if needed”.

She said Perry had in recent meetings “impressed upon his counterparts that keeping supply up is important for the global economy”.

Oil prices rose to $85 a barrel this week as buyers of Iranian crude wound down their purchases to meet the terms of U.S. sanctions on Tehran.

Sources said Riyadh would help fill that shortfall because buyers needed replacement supplies. Saudi Arabia has spare capacity to produce oil at a higher rate and holds a large volume of crude in storage.

At the same time, Saudi Arabia is keen to maintain unity among the so-called OPEC+ alliance, a group comprising OPEC states, Russia and several other producers that has agreed on output curbs. That’s because it may need to change course and seek the collaboration of OPEC+ for any future production cuts.

FOOTBALL DIPLOMACY
In the run up to the private deal with Russia, Falih flew to the United States during the second week of September where he and fellow Texas A&M University alumnus Perry attended a football game in College Station, Texas.

Falih then held official talks with Perry in Washington on Sept. 10, the U.S. Energy Department has said.

Perry flew to Moscow two days later to meet Novak, while Falih also met Novak in Moscow a day later.

Perry told Reuters during his Moscow visit that Saudi Arabia, the United States and Russia had enough capacity between them to compensate for the loss of Iranian supply over the next 18 months.

After Moscow, Falih and Perry met again in Vienna where they attended an event in the Austrian capital, sources said.

“Perry was aware that Russia is going to ramp up oil output,” a third source familiar with talks said.

It was at this point that Falih and Novak discussed announcing a 500,000-bpd increase at the Sept. 23 Algiers meeting of OPEC and non-OPEC countries. The plan did not materialize, with any formal decision deferred until a regular OPEC meeting in Vienna on Dec. 6.

“Saudi Arabia is not going to flood the market and risk a price crash. Saudi Arabia has to work with other producers and see what are they doing, who is raising exports and to which market,” another source said.
Source: Reuters (Additional reporting by Timothy Gardner in Washington; editing by Richard Mably and David Clarke)