Trump opens new front on OPEC


The production of shale oil in the United States in July will set a new record. According to forecasts of the US Energy Information Administration (EIA), oil will grow by 141 thousand b/day and will make up 7.34 mn b/day. This is more than now produced by Iraq (4.2 mn b/day) and the UAE (about 3 mn b/day) combined or five times more than Venezuela is currently producing.

According to the International Energy Agency (IEA), in May, the daily production in Venezuela was 1.36 mn barrels, having dropped by more than 1 mn b/day in two years after US sanctions and halted technical cooperation between countries (in 2015, Venezuela produced 2.4 mn b/day).

Experts expect a further decline in production in Venezuela: JPMorgan analysts consider the risk of its fall below 1 mn barrels a day as “very high”.

The sharp decline in production in Venezuela helped exceeding the agreement of 24 OPEC+ countries on cutting production by 1.8 mn barrels per day.

Many analysts believe the United States, not participating in OPEC+, is the main beneficiary of the transaction. The agreement eliminated the surplus of raw materials worldwide, and quotes grew by more than two times over from the minimum figures.
According to analysts, for American producers of shale oil, production becomes profitable at an oil price above $ 50 per barrel, so the United States is determined this year to surpass Saudi Arabia in terms of production.

However, expensive oil, although beneficial to shale, is generally harmful to the US economy. America remains the main consumer of oil in the world market: the United States needs about 19 mn barrels a day. The growth of oil quotations this spring has already inflated gasoline prices to almost $ 3 per gallon, which negatively affects demand and the economy as a whole. In addition, high oil prices spur the development of alternative energy sources that compete with oil products, experts warn.

“Looks like OPEC is at it again. With record amounts of oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!” Trump tweeted on April 20 at the height of the OPEC + talks.

During the OPEC meeting and uneasy negotiations on a possible increase in production on June 22, Trump wrote a new tweet, urging the parties to make the “right” decision that would help maintaining prices at a low level.

Trump’s tweets hardly influence the decision-making process of the OPEC countries. For example, after the April tweet futures for Brent crude fell 0.5% but then quickly recovered.

The White House’s decision to withdraw from the “nuclear deal” with Iran and “attack” Tehran with new restrictive measures, however, did influence oil prices and heated the market to $ 80 a barrel.

Finance Secretary Stephen Mnuchin said in May that Washington was “negotiating with various countries that would like to increase oil supplies in order to compensate for the impact of US sanctions on Iranian oil.”

Bloomberg reported that the US government asked Saudi Arabia and some other OPEC members to increase oil production by about 1 mn barrels a day to balance prices.

Trump is convinced that this problem would be solved if the US Congress passes a bill on the Prohibition of Cartels in the Field of Oil Production and Export, the so-called – NOPECS.394. The bill amends Sherman’s antitrust law, which will make it illegal for any joint action by governments of other countries aimed at limiting oil production and setting prices for it.

It is not entirely clear how this law can work with OPEC countries. In addition, oil prices are formed under the influence of many factors, so it is difficult to prove someone’s single fault in pricing, experts argue.

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