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Trump's Tweet Falls on Deaf Ears, Crude Rises to 3-Year High
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As we know, U.S. President Donald Trump loves to tweet and has quite a loose-cannon approach toward it. After the twitter tussle between the President and Amazon.com, Inc. (AMZN - Free Report) early this month, Trump attacked OPEC — The Organization of Petroleum Exporting Countries— blaming it for artificially hiking oil prices, post which crude prices tumbled; albeit temporarily.
The energy market has witnessed extreme volatility in terms of prices over the past three years. However, the market has finally recovered from the historic lows to comfortably trade at more than $60 a barrel since the start of this year. Crude has been well supported by a variety of catalysts, including strong demand and continued production curbs from OPEC and its allies.
Since 2014, major oil producing countries whose economies depend heavily on the resource revenue, have been hugely affected by the oil slump caused by the supply glut. Hence, OPEC members as well as other major non-OPEC countries entered into an agreement in late 2016 to curb oil production in an attempt to rebalance the market. The continued efforts of OPEC have led to the gradual recovery of oil prices.
However, it seems that the rally in oil prices on the back of OPEC’s commitment to curtail production has not gone too well with President Trump. OPEC has hiked gasoline prices in the United States and rising energy costs may lead to inflation. Trump took to Twitter on Apr 20 to express his anger, blaming OPEC for artificially inflating oil prices.
Trump’s OPEC Tweet Leaves No Lasting Impact
His tweet read: “Looks like OPEC is at it again. With record amounts of oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!”
This is the first time that Trump lashed out at OPEC on social media during his presidential term. The tweet came as the OPEC and non-OPEC members met in Jeddah, Saudi Arabia, to reaffirm their agreement in order to keep output limited. The meeting determined that compliance is at its highest level ever.
Following Trump’s tweet, crude prices came under much pressure, dropping to $67.50 a barrel for WTI and $72.83 for Brent. However, by the end of the day it moved higher, rebounding from early losses, to close at $68.38 a barrel (WTI) and $74.07 a barrel (Brent).
In fact, the impact of Trump’s tweet fizzled out too soon with both WTI and Brent crude prices pivoting higher yesterday to touch their three-year highs at $ 68.64 a barrel and $ 74.71 a barrel, respectively.
Notably, the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — also rose 0.61% as of Apr 23. The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) , added 0.72% and 1%, respectively. Both these supermajors carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other big energy companies, Occidental Petroleum Corporation (OXY - Free Report) was up 1.01%, Valero Energy Corporation (VLO - Free Report) gained 0.65%, while EOG Resources, Inc. (EOG - Free Report) saw its stock price go up 0.76%.
OPEC Denies, Hits Back
Suhail Al Mazrouei — OPEC’s President and UAE’s minister of energy industry — rejected Trumps criticism of OPEC manipulating oil prices claiming that they never targeted any specific price level. He maintained his stance of just focusing on efforts to cut production in order to rebalance the market and prevent it from supply glut.
Khalid al-Falih said, “There’s no such thing as artificial price.” He claimed that the OPEC agreements cannot continue to curb the production indefinitely and that it is in fact market demand and supply factors that actually set the price.
Alexander Novak, Russia’s energy minister, also supported Falih’s claims asserting that OPEC’s production cut agreement is not just the only factor leading to oil price surge; rather it is the overall market dynamics that determine the price. Further, he also pointed out that crude price recovery has aided the U.S. shale oil industry, with domestic output at record levels.
Primary Drivers of Crude Recovery
One of the main reasons why the U.S. oil benchmark soared revolved around expectations that OPEC and other major producers agreed to expand their output-cut deal beyond March. The coalition prolonged the agreement for another nine months to the end of 2018 in an attempt to clear the supply gut.
Meanwhile, reports have emerged that Saudi officials are looking to push oil prices even higher ahead of the launch of the Aramco IPO to bolster its valuation.
Another major factor fueling higher oil prices is fast-growing demand for the commodity, which continues to tighten the market. Per the International Energy Agency (IEA), global oil demand is likely to grow by 1.5 million barrels a day this year to average 99.3 million barrels a day.
Sharp inventory drawdowns have also helped the commodity tread on a growth trajectory. Oil stockpiles have shrunk in 36 of the last 51 weeks and are down more than 100 million barrels since April last year. The gradual fall – stemming from a combination of lower imports and spiralling exports – has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 429.9 million barrels, current crude supplies are 20% below the year-ago period.
However, not just these factors but other Middle-East tensions also led to this huge rise in oil prices.
Other Factors Behind the Uptick
Fueling the rally in oil prices over the last few weeks are concerns that geopolitical tensions in the Middle East could disrupt crude supplies. Crude prices have been soaring lately on expectations of the reintroduction of sanctions on Iran, expansion of sanctions against Venezuela and strikes on Syria.
Iran Nuclear Deal: Industry watchers are waiting to see if the Trump administration decides to impose sanctions on Iran once again, post the May 12 deadline. Following the lifting of sanctions in 2016 as part of Obama-era agreement, Iran’s crude oil production and exports have been rising. However, the return of sanctions would put pressure on Iran’s energy industry and affect the oil market in general. A disruption to Iranian oil exports and investments in the country might cut off some of its supplies to the global market, thereby boosting prices.
The Venezuela Issue: Fast falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has shrunk almost 50% since 2005. As it is, Venezuela currently churns out less than 2 million barrels per day, much lower that its pledge per the OPEC-led supply cuts. U.S. sanctions have further aggravated the situation. Further, Trump is likely to increase sanctions on Venezuela, which will further tighten the markets. A prolonged slump in Venezuela production could result in higher prices.
Syria Strike and Russian Involvement Also Pushes Oil Higher: The conflict in Syria heightened after a joint air strike by the United States, France and the United Kingdom, post which crude started marching north. The rally will continue as the United States is likely to take strong measures against Iran and Russia for backing Syria’s chemical attack.
Also, the Russian market has seen increased volatility after Moscow was slapped with new American sanctions on Apr 6. Trump will take a strong stand against Russian players, who reportedly helped Syria to carry out the chemical attack. Since, Russia is one of the largest producers and exporters of crude in the world, any sanction on the country will lift crude price.
In Conclusion
Since April, prices of oil ticked up by almost 8%. However, the latest uptick has got a lot to do with geopolitical tensions and the Trump administration’s policies rather than just the OPEC production curbs. The United States being a powerful global power, plays a significant role in contributing toward these geopolitical tensions. Hence, Trump’s tweet holding OPEC responsible for the surge in prices seems more like a case of the pot calling the kettle black.
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Image: Bigstock
Trump's Tweet Falls on Deaf Ears, Crude Rises to 3-Year High
As we know, U.S. President Donald Trump loves to tweet and has quite a loose-cannon approach toward it. After the twitter tussle between the President and Amazon.com, Inc. (AMZN - Free Report) early this month, Trump attacked OPEC — The Organization of Petroleum Exporting Countries— blaming it for artificially hiking oil prices, post which crude prices tumbled; albeit temporarily.
The energy market has witnessed extreme volatility in terms of prices over the past three years. However, the market has finally recovered from the historic lows to comfortably trade at more than $60 a barrel since the start of this year. Crude has been well supported by a variety of catalysts, including strong demand and continued production curbs from OPEC and its allies.
Since 2014, major oil producing countries whose economies depend heavily on the resource revenue, have been hugely affected by the oil slump caused by the supply glut. Hence, OPEC members as well as other major non-OPEC countries entered into an agreement in late 2016 to curb oil production in an attempt to rebalance the market. The continued efforts of OPEC have led to the gradual recovery of oil prices.
However, it seems that the rally in oil prices on the back of OPEC’s commitment to curtail production has not gone too well with President Trump. OPEC has hiked gasoline prices in the United States and rising energy costs may lead to inflation. Trump took to Twitter on Apr 20 to express his anger, blaming OPEC for artificially inflating oil prices.
Trump’s OPEC Tweet Leaves No Lasting Impact
His tweet read: “Looks like OPEC is at it again. With record amounts of oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!”
This is the first time that Trump lashed out at OPEC on social media during his presidential term. The tweet came as the OPEC and non-OPEC members met in Jeddah, Saudi Arabia, to reaffirm their agreement in order to keep output limited. The meeting determined that compliance is at its highest level ever.
Following Trump’s tweet, crude prices came under much pressure, dropping to $67.50 a barrel for WTI and $72.83 for Brent. However, by the end of the day it moved higher, rebounding from early losses, to close at $68.38 a barrel (WTI) and $74.07 a barrel (Brent).
In fact, the impact of Trump’s tweet fizzled out too soon with both WTI and Brent crude prices pivoting higher yesterday to touch their three-year highs at $ 68.64 a barrel and $ 74.71 a barrel, respectively.
Notably, the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — also rose 0.61% as of Apr 23. The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) , added 0.72% and 1%, respectively. Both these supermajors carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other big energy companies, Occidental Petroleum Corporation (OXY - Free Report) was up 1.01%, Valero Energy Corporation (VLO - Free Report) gained 0.65%, while EOG Resources, Inc. (EOG - Free Report) saw its stock price go up 0.76%.
OPEC Denies, Hits Back
Suhail Al Mazrouei — OPEC’s President and UAE’s minister of energy industry — rejected Trumps criticism of OPEC manipulating oil prices claiming that they never targeted any specific price level. He maintained his stance of just focusing on efforts to cut production in order to rebalance the market and prevent it from supply glut.
Khalid al-Falih said, “There’s no such thing as artificial price.” He claimed that the OPEC agreements cannot continue to curb the production indefinitely and that it is in fact market demand and supply factors that actually set the price.
Alexander Novak, Russia’s energy minister, also supported Falih’s claims asserting that OPEC’s production cut agreement is not just the only factor leading to oil price surge; rather it is the overall market dynamics that determine the price. Further, he also pointed out that crude price recovery has aided the U.S. shale oil industry, with domestic output at record levels.
Primary Drivers of Crude Recovery
One of the main reasons why the U.S. oil benchmark soared revolved around expectations that OPEC and other major producers agreed to expand their output-cut deal beyond March. The coalition prolonged the agreement for another nine months to the end of 2018 in an attempt to clear the supply gut.
Meanwhile, reports have emerged that Saudi officials are looking to push oil prices even higher ahead of the launch of the Aramco IPO to bolster its valuation.
Another major factor fueling higher oil prices is fast-growing demand for the commodity, which continues to tighten the market. Per the International Energy Agency (IEA), global oil demand is likely to grow by 1.5 million barrels a day this year to average 99.3 million barrels a day.
Sharp inventory drawdowns have also helped the commodity tread on a growth trajectory. Oil stockpiles have shrunk in 36 of the last 51 weeks and are down more than 100 million barrels since April last year. The gradual fall – stemming from a combination of lower imports and spiralling exports – has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 429.9 million barrels, current crude supplies are 20% below the year-ago period.
However, not just these factors but other Middle-East tensions also led to this huge rise in oil prices.
Other Factors Behind the Uptick
Fueling the rally in oil prices over the last few weeks are concerns that geopolitical tensions in the Middle East could disrupt crude supplies. Crude prices have been soaring lately on expectations of the reintroduction of sanctions on Iran, expansion of sanctions against Venezuela and strikes on Syria.
Iran Nuclear Deal: Industry watchers are waiting to see if the Trump administration decides to impose sanctions on Iran once again, post the May 12 deadline. Following the lifting of sanctions in 2016 as part of Obama-era agreement, Iran’s crude oil production and exports have been rising. However, the return of sanctions would put pressure on Iran’s energy industry and affect the oil market in general. A disruption to Iranian oil exports and investments in the country might cut off some of its supplies to the global market, thereby boosting prices.
The Venezuela Issue: Fast falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has shrunk almost 50% since 2005. As it is, Venezuela currently churns out less than 2 million barrels per day, much lower that its pledge per the OPEC-led supply cuts. U.S. sanctions have further aggravated the situation. Further, Trump is likely to increase sanctions on Venezuela, which will further tighten the markets. A prolonged slump in Venezuela production could result in higher prices.
Syria Strike and Russian Involvement Also Pushes Oil Higher: The conflict in Syria heightened after a joint air strike by the United States, France and the United Kingdom, post which crude started marching north. The rally will continue as the United States is likely to take strong measures against Iran and Russia for backing Syria’s chemical attack.
Also, the Russian market has seen increased volatility after Moscow was slapped with new American sanctions on Apr 6. Trump will take a strong stand against Russian players, who reportedly helped Syria to carry out the chemical attack. Since, Russia is one of the largest producers and exporters of crude in the world, any sanction on the country will lift crude price.
In Conclusion
Since April, prices of oil ticked up by almost 8%. However, the latest uptick has got a lot to do with geopolitical tensions and the Trump administration’s policies rather than just the OPEC production curbs. The United States being a powerful global power, plays a significant role in contributing toward these geopolitical tensions. Hence, Trump’s tweet holding OPEC responsible for the surge in prices seems more like a case of the pot calling the kettle black.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>