For someone who has claimed to be unhappy about rising oil prices the Trump administration sure has a funny way of showing it, or taking steps to achieve it.
Having implemented a raft of tax cuts at the beginning of the year to put more money in consumers’ pockets the White House administration’s action since then have served to erode the benefit of that fiscal boost, over the few weeks.
In the wake of pulling the US out of the Iranian nuclear deal the US President then went on to criticise OPEC for pushing up crude oil prices, rather overlooking the fact that if you take over 3.8m barrels of supply out of global production that tends to push prices up.
The recent OPEC agreement to push up production by 1m barrels will go some way to help offset the loss of Iranian exports, however it won’t alleviate it completely even if Saudi Arabia does boost its July output to a record of 11m barrels a day.
Yesterday’s announcement by the US State Department that the US expected its allies to stop all imports of Iranian crude by November may well have been designed to ramp up the pressure on the Iranian regime, but it is also likely to exert further upwards pressure on US prices, which are already close to levels last seen back in 2014, and their May peaks.
The move higher in prices has also started to close the gap with Brent crude prices almost halving the gap from over $11 earlier this month to just under $6 now.
The tightness in global and US supplies isn’t likely to be helped by production outages in Libya and Canada, as well as the limited ability of other OPEC countries to up their production capacity in such a short space of time, which suggests we could see US crude head towards $76 a barrel in short order on any break through the highs of earlier this year.
It is true that US shale producers are also producing at record levels, however even here there are capacity constraints, which means that the White House may have to decide whether it wants full compliance with its sanctions in the timescale stated, which seems unlikely, and a gasoline price heading up to $4 a gallon ahead of midterm elections, or whether they want to be more flexible, less a backlash from the US consumer.
They could of course ease up on the sanctions implementation timescale, thus easing the pressure on prices, or open up the Strategic Petroleum Reserve, and increase supply in order to keep a lid on prices.
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