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President Donald Trump blasted Middle East oil producers on Twitter Thursday, saying “they continue to push for higher and higher oil prices!” — but oil prices are at current levels due to demand from the United States and the Trump administration’s hard line on Iran, say petroleum market experts. What’s more, with the U.S. now the top oil-producing country in the world, lower prices could hurt the American companies — and workers — in the industry.
In a familiar refrain on Thursday morning, Trump tweeted, “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!”
In actuality, this is largely a demand-fueled price increase that is due to robust U.S. and global economic growth, said Pat McKinnon, senior director at Euler Hermes North America. “The rise you see in prices here is fundamentally based around demand,” he said.
“The global economy has actually done better than most people expected in the most recent years, which obviously means you have higher demand. As a result, you have a tighter oil market than you probably would have predicted a couple years ago,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
And in reality, it’s unlikely that the Organization of the Petroleum Exporting Countries would bend to Trump’s demand — which they likely couldn’t do, even if they were so inclined.
“There’s really very little amount of spare capacity among OPEC members, and U.S. producers are already limited by pipeline capacity, especially in West Texas,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.
The backdrop to all of this has been the meteoric, and largely surprising, emergence of the United States as an oil superpower, a development helped along by the incremental increase in prices. According to a note published by the Department of Energy last week, “The United States likely surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer earlier this year, based on preliminary estimates.”
“In and of itself, [this] is an absolutely remarkable development,” Kirkegaard said.
The lower price point Trump is calling for — assuming OPEC could even deliver on that demand — would blunt this trajectory.
“I don’t know why he would do anything here,” McKinnon said. “It allows us to have a robust production community in the U.S. It’s allowing us to be the world’s largest producer at this point,” he said. “In this case, the market is kind of in a good balancing place right now.”
Experts point out that another factor contributing to current prices is the Trump administration’s withdrawal from the Iran nuclear deal.
“His hardline on Iran is going to cost Americans more at the pump,” DeHaan said. As of now, he estimated that the Iran effect only is contributing about a nickel or so towards today’s prices on the average gallon of gas. “It’s more of a risk premium than anything else,” he said.
But DeHaan predicted that could change after OPEC meets later this year. “I think at that meeting in late November they’ll very closely look at the impact the sanctions are having,” he said, and any surprises could trigger a market shock.
Of course, if Iranian production continued unabated, this risk premium — and the threat of higher prices down the road — would no longer be in play, but experts concede this is unlikely to happen.
“One way he could try to push prices down would be to go easy on Iran,” Kirkegaard said. “He can’t have his cake and eat it too, so to speak.”