President Trump’s declaration that crude oil prices are “artificially high” may have been an early move to deflect ire from U.S. consumers angry about rising gasoline prices headed into summer and election season.
Oil prices reached a three-year high last week, approaching $70 per barrel from below $30 per barrel in 2016, which is driving up the price of gasoline.
Pump prices were $2.79 per gallon on average nationwide Monday, up 5 cents from last week and 35 cents from a year ago, according to the Energy Information Administration. Experts say drivers this summer could pay the highest prices for gasoline since 2014, although less than the high in 2008, when the average topped $4 a gallon.
“There is some effect on pump prices attributable to higher oil prices,” said Kevin Book, managing director for research at ClearView Energy. “It’s always the largest component, but there is also a seasonal component, where there is a change in gasoline prices every year around summer driving season. When the two hit at once, it hits the pocket book the hardest.”
Higher oil prices benefit U.S. producers, which have helped advance Trump’s “energy dominance” agenda.
But in criticizing OPEC for “artificially” raising oil prices by cutting supply, Trump may be signaling to his political base that he fears high prices could hurt consumers.
Trump, in his Friday tweet, was likely referring to an agreement between OPEC and non-OPEC nations such as Russia that began in January 2017 to drive up oil prices by cutting 1.8 million barrels per day. The agreement is set to expire by the end of 2018, but Saudi Arabia and Russia, the world’s top two crude oil producers, have talked about extending it.
“He really wants to get ahead of the blame game on oil prices rising,” said Joseph McMonigle, president of the Abraham Group, a consulting firm, and a former chief of staff of the Energy Department in the George W. Bush administration. “He is trying to establish it’s the OPEC agreement raising prices and not his policies.”
Residents of red states, many of which have rural and low-income communities, are more vulnerable to higher pump prices than those in blue states, which could dampen the impact of tax cuts passed by the GOP-controlled Congress.
Households in states Trump won spent about 1 percent more of their disposable income on energy than households in states that didn’t, ClearView said in a December report.
“The impact of a gas price increase is regressive,” Book said. “The direct benefits from high energy prices go to a small number of voters and the direct costs go to everybody. When you look at it that way, it explains why when you have an election coming up, you may rhetorically pivot from a small concerted number of people to a broader base of people.
“The Trump administration is choosing which side they are on,” Book added, citing recent White House decisions that show it has begun to prioritize certain segments of Trump’s base over others, such as Trump’s tariffs on steel imports to benefit domestic manufacturers, which the energy industry opposed.
While bad for consumers, higher oil prices are good news for energy producers.
The U.S. is anticipated to experience “explosive growth” in oil production in 2018 and will surpass Saudi Arabia’s output for the first time, the International Energy Agency reported in January.
The U.S. is exporting more crude oil than ever because of the shale boom, a welcome milestone for a president obsessed with trade gaps and producing natural resources at home.
“We are frankly in a period where higher oil prices are good for the U.S. economy,” McMonigle said. “When I was at the Energy Department, before every OPEC meeting, we would ask energy ministers to increase production to keep prices low. Now, because of shale, the U.S. is a major oil production country itself. The resurgence of that sector has provided economic growth, job creation, and good paying jobs, and these companies need higher prices compared to the last two years to reinvest in production.”
“Now that we developed our oil and gas sector, it’s not as simple saying higher prices are bad for the U.S.,” McMonigle added.
Still, the nation’s 484,300 oil drilling and services jobs as of March accounted for about 0.33 percent of total nonfarm payrolls, according to Bureau of Labor Statistics data cited by ClearView.
White House policy decisions over the next month have the potential to drive crude oil prices even higher.
Energy experts have connected the recent price surge to geopolitical risks in oil-producing countries, including the possibility of renewed oil sanctions on Iran if the Trump ends the nuclear deal with that country. The next deadline for Trump to waive sanctions to keep the deal alive is May 12.
In addition, oil production in Venezuela, one of the world’s largest producers, has sunk as the country suffers from a financial crisis with shortages of food and medicine.
Analysts have speculated the Trump administration could move to ban oil imports from Venezuela after its May 20 presidential election to punish the government for recent moves to suppress democracy.
“Higher prices make it harder for the president to make strategic decisions that impact the oil front,” said Amy Myers Jaffe, a leading expert on global energy policy at the Council on Foreign Relations. “Understanding his base, he knows how important low oil prices are to the economic health of average Americans, and he has these decisions coming up that are geological in nature. It’s gotta be pretty frustrating if you’re the president and you have to make critical decisions about outside events that keep coming back like an albatross around your neck.”
