President Donald Trump convinced Saudi Arabia to increase oil output in June and to lobby other nations to do the same in exchange for what he promised were strong sanctions against Iran that would dry up its oil exports in November.
That led to lower gas prices in the U.S., including a drop of more than 5% in the last few weeks. However, prices still remain higher in 2018 than at the same period in the previous three years.
However, the Saudis appear to have been taken in by a two-part strategy pursued intentionally or otherwise by the Trump administration, CNBC and Reuters report.
First, the U.S. Granted six-month exemptions to several of Iran’s biggest oil purchasers on Nov. 2, when sanctions took effect, leaving more supply in the market than Saudis were led to believe.
Prior to sanctions, the U.S. Pressure campaign helped reduced Iran’s exports from about 2.7 million to 1.6 million barrels a day. They should remain in the 1 million to 1.5 million range, based on multiple reports, due to the waivers. Saudi Arabia’s energy minister said on Nov. 13, “Sanctions didn’t cut so much out of the market as anticipated.”
Prices per barrel have dropped from the mid $70s in October to the mid-$50s on Nov. 15, and some analysts believe they could plunge further.
Statements by Saudi Arabia that it would attempt to restrict supply resulted in the second part: A tweet by the president that undercut Saudi statements about reducing oil supply to bolster prices.
Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!
— Donald J. Trump (@realDonaldTrump) November 12, 2018
Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC that Trump’s tweet led to skepticism over Saudi commitments to reduce production. “There’s a sense that Trump really has them over a barrel at this point,” she said.
Saudi Arabia remains under pressure from a complicated mix of allies and opponents following the murder of Jamal Khashoggi, which the Saudi government ultimately admitted members of its security apparatus committed.