President Trump will haunt this weekend’s OPEC meeting, as the oil cartel tries to head off his increasingly desperate prodding to boost oil production to keep prices from rising ahead of the U.S. midterm elections.
The current global oil price is hovering around $80 a barrel for the first time since May, as investors bet that OPEC will be unable to plug a growing loss of oil from Iran because of Trump’s sanctions on the country. U.S. gasoline prices, influenced heavily by the world oil price, have stayed steady at about $2.85 on average over recent weeks. But Trump appears to be hedging against that changing. He engaged in Twitter diplomacy on Thursday, demanding that “the OPEC monopoly must get prices down now!”
Trump’s had success tweet-bullying OPEC before. But this weekend’s meeting could turn out differently.
“The president is clearly sensitive to the problems that come along with $80 per barrel oil,” Richard Nephew, a senior research scholar at Columbia University’s Center on Global Energy Policy, told the Washington Examiner. “$80 equates in his mind to $3 a gallon at the pump. For him, and the people who voted for him, that is a real problem. So when it creeps up, he rattles some cages.”
Experts say it’s uncertain how much more OPEC could do to appease Trump when it meets with nonmember countries, including megaproducer Russia, in Algeria on Sunday.
OPEC — working with Russia — already agreed in June to increase oil production by a collective 1 million barrels per day. Because that target is divvied up proportionately to all members of the agreement, even those who don’t have the ability to boost production, the real increase target was lower, about 600,000 to 700,000 barrels a day.
OPEC, which pumps about one-third of the world’s oil, is largely fulfilling that target, although there is some wiggle room to do more, especially among the group’s biggest producer, Saudi Arabia, a close ally of the Trump administration.
OPEC’s production reached a nine-month high in August, the International Energy Agency said.
Before this summer, OPEC and Russia had conspired for a year-and-a-half to cut crude production to boost prices that had fallen to below $30 in 2016 because of massive new supply from the U.S. shale boom.
“OPEC’s production gains still have additional room to go up,” Kevin Book, managing director for research at ClearView Energy, told the Washington Examiner. “There is more headroom in the kingdom and with other producers. But they have their own cautions. History makes them cautious. They don’t want to flood a market that doesn’t need their oil and suffer consequences of the glut.”
OPEC and Russia are expected to discuss at the Sunday meeting whether the group needs to further boost output. However the group isn’t likely to make a formal decision since such a policy change normally occurs during “extraordinary meetings,” which this one isn’t.
Iran, OPEC’s third largest producer, is boycotting the meeting, eager to prove the harm of Trump’s policy of reimposing oil sanctions on Tehran, and punishing other nations that continue to buy the country’s crude starting on Nov. 4.
“The president’s overtures are an attempt to finger OPEC as the culprit for higher prices while somehow ignoring the role of his own policies,” Frank Verrastro, senior vice president of the energy and national security program at Center for Strategic and International Studies, told the Washington Examiner. “There is simply not enough readily available spare capacity in the world to cover the loss of Iran going to zero exports coupled with supply disruptions from Venezuela, Nigeria, Libya and the like.”
Iran’s oil exports are already falling fast ahead of Trump’s sanctions, tightening global supply and pressuring prices.
OPEC’s spare capacity fell to 2.69 million barrels a day in August, a loss of 780,000 barrels a day since April, according to the IEA. Spare capacity is surplus oil production that can be brought online within 90 days.
Earlier this summer, the IEA warned the world’s excess oil supply may be “stretched to the limit” because of output disruptions from major producers.
“It will be tough for OPEC to keep a lid on prices even as we get to the U.S. election because losses from Iran will get pretty big, and spare capacity is not that great either,” 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. “They will try, but I am not sure they will be successful.”
McMonigle told the Washington Examiner he expects prices to rise after the November midterms, when Trump may not care as much.
The near-term threat is not as great because Trump has additional leverage over OPEC, experts agree.
For example, Trump could look to build support for legislation in Congress that would allow the U.S. government to sue OPEC for manipulating the oil market. The House Judiciary Committee has already passed the so-called “NOPEC” bill that would open up the cartel to antitrust lawsuits, potentially leaving it vulnerable to paying billions of dollars in repatriations. Presidents George W. Bush and Barack Obama have threatened to veto previous versions of the bill, but Trump is different.
Trump, in his 2011 book, even urged support for NOPEC, writing, “We can start by suing OPEC for violating antitrust laws.”
“This is politically good red meat stuff and it’s not apparent Democrats would oppose it,” said Nephew, who previously led sanctions policy in the Obama administration. “The odds of this happening can’t be dismissed at all. It’s a credible option.”
McMonigle said OPEC members fear the potential legislation passing. The Saudis recently hired a lobbyist to campaign against it.
“All of OPEC is concerned about it,” he said. “The fact Trump the used word monopoly [in his Thursday tweet] will get the attention of folks at this weekend’s meeting.”
Trump could also order a release of the Strategic Petroleum Reserve, which is meant for an an emergency supply disruption. Critics say it is wrong to use the reserve for political reasons. But OPEC is on notice.
“OPEC has strong incentives to make it look like the are responding to the president,” Book said.
