Oil's Perfect Storm Lays At Trump's Feet

Authored by Tim Daiss via OilPrice.com,

It’s becoming painfully clear that the way forward for global oil markets is going to be bumpy, very bumpy, particularly as we head into next year. Much of this uncertainty, even blame, is being increasingly leveled at a person that has surprised, flabbergasted and even shocked political opponents, allies and adversaries alike since he took office - President Donald Trump.

A growing line of thought surmises that while Trump uses the presidential bully pulpit, in this case Twitter, to put pressure on long-time ally and de facto OPEC leader Saudi Arabia to get ready to pump more oil to keep (both oil and gas) prices from spiraling out of control, much of the blame for higher prices actually belong to Trump.

The argument makes perfect sense.

If Trump would ease back on both his heated rhetoric toward Iran, though that case could be made over much of Trump’s dealings with China, the EU, Canada and others, and if Trump would revisit his decision on re-imposing sanctions on Iran, then oil markets would benefit.

Why? A softer line on Iran would reduce the worry or even fear that a loss of some 2.7 million barrels per day (bpd) of Iranian crude would roil oil markets so much that the Saudis would have to pump an unprecedented amount of oil, perhaps as much as 12.5 million bpd, eating up all of its spare capacity.

The Saudi’s have never pumped more than around 10.7 million bpd of oil, a level reached in June, and has for more than 50 years kept at least 1.5-2 million bpd of spare capacity for oil market management.

Under such a worst-case scenario, global oil markets would be dangerously exposed to any oil demand/consumption increases as well as geopolitical developments that always take aim at global oil markets. A recent Bloomberg article articulated the problem well. It said that “the simple truth is that there isn’t enough spare capacity in the world to replace the complete loss of Iranian exports.”

“Saudi Arabia can boost output to 11.5 million bpd immediately,” the report added, citing a 2016 interview with Saudi Crown Price Mohammed bin Salman. It can also go to 12.5 million in six to nine months, Bloomberg added, but the prince has said nothing since then to suggest the figures have changed.

Trump’s thinking called into question

However, all of this seems to be lost on Trump. With mid-term November elections approaching and decisive House and Senate seats in contention, much of the second half of the president’s term could be jeopardized if higher gas prices (amid higher oil prices) eat into voters’ pocket books and they take their frustration out at the polls. Trump’s only plan appears to put undue, perhaps geopolitically damaging pressure on the Saudis to make up for anticipated lost barrels when the Saudis likely can’t do it alone.

It’s also apparent that Trump has taken an emboldened stance with the Saudis since its Riyadh who was instrumental in Trump’s decision to re-impose Iranian sanctions.

With oil production problems persisting in Libya and in Venezuela and with those problems likely to carry into the fall election season and beyond, Trump is playing a dangerous game and could find his back against the wall. Voter angst in November would also spill over into the upcoming 2020 presidential election season. Consequently, the often-used campaign slogan of presidential incumbents, “Re-elect the President” may fall on deaf ears.

Two weeks ago, Hootan Yazhari, head of frontier markets equity research at Bank of America Merrill Lynch, said Trump’s push to disrupt Iranian oil production could cause oil prices to hit $90 per barrel by the end of the second quarter of next year. Others have forecasted even higher prices, breaching the $100 plus per barrel price point.

The only option, alluded to at the top of this piece, would be for Trump to re-engage with America’s European allies over Iranian nuclear development and other concerns. This would tone down oil market worries and perhaps even open the door for re-negotiation with both the EU and in time Tehran - in essence, cooler heads and diplomacy would prevail. However, there is little chance that the president would, or even could at this point, change his mind without losing immense political face. Something, thus far, he has been unwilling to do.

Comments

FireBrander Thu, 07/12/2018 - 10:07 Permalink

Trump isn't acting, 100%, like all of the past/present politicians that have F'd up this world...the horror!

He's honestly shuffling the rigged deck of cards he was handed...and the hustlers are upset...Trump, for the most part, doesn't care...he has a goal....MAGA.

"I've looked over. And I've seen the Promised Land. I may not get there with you. But I want you to know tonight, that we, as a people, will get to the Promised Land. So I'm happy, tonight. I'm not worried about anything. I'm not fearing any man"

FireBrander FireBrander Thu, 07/12/2018 - 10:19 Permalink

open the door for re-negotiation with both the EU and in time Tehran

It's been what....40 years?... of "negotiations"...and the result is....failure.

When hotels wear out, they can be remodeled...but sometimes it's better to knock them down and build something new and modern...that is what Trump is "up to" but first he has to evict all of the squatters..and they don't like it one bit.

In reply to by FireBrander

JimmyJones BaBaBouy Thu, 07/12/2018 - 10:33 Permalink

@FireBrander, I am with you.  I have watched all the past presidents say one thing and do the opposite.  We finally got a real leader doing what the rest wouldn't do.  Call out the corruption and the BS.  Like a Man should.  He has pissed of and totally marginalized the Neo-Cons and the NeoCons that call them selves Dems (chuck, Nancy, Hillary etc).  What more can you ask for, all the right people hate him.

In reply to by BaBaBouy

directaction JimmyJones Thu, 07/12/2018 - 11:34 Permalink

There hasn't been a major oil field discovery in well over 40 years. We're now sucking at the bottom of every oil field ever discovered. 

For this reason industrialized civilization is drawing to a close.

And when that occurs, in about 3.5 years, all Hell will break loose.

The last TDF bicycle race will be in 2022 featuring an unarmed bicyclist being chased by another bicyclist armed with a pistol and a lighter and a fork.  

In reply to by JimmyJones

Scipio Africanuz FireBrander Thu, 07/12/2018 - 12:35 Permalink

All Iran has to do, and yes, they need to compromise, is to offer Trump an addendum to the JCPOA, and call it the IA ( Integrated Addendum), that allows Trump to claim credit for a robust deal, that benefits all parties, simple!

The issue of the tel aviv regime, should not be conflated with rational economic issues. That issue, is for the entire world to deliberate upon, it shouldn't play any part at all, in robust give and take economic diplomacy!

Wishing President Trump, and Ayatollah Khamenei, the wisdom of elders. The balancer can act as go between, cheers...

In reply to by FireBrander

dizzyfingers FireBrander Thu, 07/12/2018 - 15:44 Permalink

CO2 Emissions Lowest in Seven Decades In Trump’s America

“We suspect you won’t hear too much about this from the liberal mainstream media, or the environmental movement, or even Al Gore,” says zerohedge.com. “But, according to the  latest energy report from The Energy Information Administration (EIA), under President Trump, per-capita carbon dioxide emissions are now the lowest they’ve been in nearly seven decades.” Even more…

Continue reading →

In reply to by FireBrander

Rothbardian in… Thu, 07/12/2018 - 10:11 Permalink

The petrodollar cuts both ways?  This is what happens when you plot world domination with central bankers, the MIC, and a sultan in a dress on a sand dune.

 

As Obama once said, "Time to eat your peas."

MrNoItAll Thu, 07/12/2018 - 10:12 Permalink

Sure, blame everything on Trump. Falling global trade due to Trump's trade wars -- except international trade (and Chinese economic growth) was seriously slumping even before the "Trade Wars" began. Blame chaos and energy shortages on Trump -- except that the entire oil industry has been in decline for many years, way before Trump, with only "fracking" the bottom of the barrel for watery grease at a total loss to keep appearances up. I keep saying it -- Trump's primary role is to be the Fall Guy for the coming global economic meltdown. Everybody will blame Trump and by extension America. Fine, so be it. We'll all smile back at you and flip the bird, as the entire world heads down the shitter.

Rothbardian in… FireBrander Thu, 07/12/2018 - 10:27 Permalink

So how has Iran attacked us economically and/or militarily?  Russia?

 

There isn't any "rebalancing" here.  Economically speaking, this is no different that Barbarossa.  None of these countries have sunk a ship, nationalized any of our assets, or embargoed us.

 

They produce crap way cheaper than us and sell it to us on credit.

 

Somehow this gets spun into some sort of nationalist propaganda in there are people in the US who actually believe that China is our enemy.  Did China come over here and steal factories or did US companies fly to China to make deals about making goods there with cheap labor and low regulation?  Currency value manipulation?  So when China started that, the US had been on the petrodollar for what?  25 years or more?

 

This whole charade has nothing to do with "rebalancing" or "fairness".  It has everything to do that the system was built and evolved on morally and intellectually flawed foundations.  50 years later we are being beaten in a world no longer beholden to the rules we set up.  As much as I loathe the idea of taxing the least of us to achieve economic outcomes...it pales in comparison to how much I loathe the propaganda that convinces those people to cheer for their own taxation.

In reply to by FireBrander

Fed-up with be… MrNoItAll Thu, 07/12/2018 - 11:21 Permalink

PASS IT ON:
 

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In reply to by MrNoItAll

Cloud9.5 Thu, 07/12/2018 - 10:39 Permalink

The reality is too frightening and the impact on the exponential debt machine too devastating to face the truth about oil production.  So, it is in the huckster’s interest to blame the reality on the presumed foibles of one man.

This is a chart on North Sea production.  Look at it and understand the trend.  The decline has nothing to do with politics.

http://www.euanmearns.com/wp-content/uploads/2013/10/uk_oil_production_…

swmnguy Thu, 07/12/2018 - 11:07 Permalink

I'm self-employed, doing work coordinating corporate meetings and events.  5 minutes ago I got off the phone with a client, because the meeting we were working on was cancelled.

The end-user client was the largest privately-held US company, which does most of its business globally.  The meeting was going to be for top leadership, at a Southeast Asian destination that is a large center for their business.  Cancelled, due to the uncertainty raised by tariff issues and Trump's trade war.

This same client had a number of corporate events in the US, where they brought in their executives from over 40 countries.  They're planning to move those events outside the US, because of the harassment and intellectual property theft US Customs inflicted on their executives entering the US.  The last time they brought in all their people, they had them leave all laptops and cell phones in the countries they work in, and provided burners with cloud access to them once they arrived here.  And US Customs harassed them for entering the US without laptops and cell phones full of proprietary and confidential information US Customs could steal and sell to competitors.

This all started under Obama, let's be clear.  But it's escalated dramatically under Trump.  It's all part of an historical process beyond the control of anyone man or Administration.  It's not a good sign, and it's accelerating with this feckless trade war bullshit.

Oil, being the most important, strategic and potentially volatile global trade commodity, and being priced in US Dollars, is going to be the flash point.  The US, contrary to current US propaganda and official self-pity, has benefited so enormously and one-sidedly from the current status quo that the US will lose the most as these trade quarrels play out.  Only people with no understanding of how global trade and finance actually work fall for the propaganda, but those are the people who never understand why things happen the way they do.  

EddieLomax swmnguy Thu, 07/12/2018 - 12:20 Permalink

Strange, I've flown into the USA with a laptop and smartphone several times and customs didn't seem to be interested in stealing the information, millions of such devices enter the USA with no one caring.

Leaving them at home and using burner phones sounds very silly, if you really were worried about the information being accessed then just zip it all up into a new name and rename the extension to some data type.  Its really hard to go through everyone's laptop and know what all the files are.

In reply to by swmnguy

shortonoil Thu, 07/12/2018 - 11:52 Permalink

Trump now has the majority of the $4 trillion in capital flows coming out of the EM coming into the US. If that is doing it wrong there is a serious problem with our primary school system!

The US has a longer term problem, and as such so does Trump. The petroleum industry has been extracting the very best that it could find for the last 158 years. Since they always take the best first, what remains gets worse and worse. What remains is almost not worth taking out of the ground. Wells get deeper and deeper, viscosity gets farther away from its most productive level, and the water cut increases. 90% of what is now pumped out of oil wells in the US is water! Venezuela is the poster child of such a process. It had a reasonable quality oil in the beginning; what now remains is closer to axle grease than oil. Venezuela will never recover because its better quality, and useable oil is gone.

To survive, unlike Venezuela, the US must be able to import the remainder of the worlds high quality oil. High quality oil produces fuels; low quality oil produces plastic action figures. Russia has some, and so does the Middle East. Iran is a border line case where the majority of its remaining fields are heavy sour, and it is suffering from a lack of development spending over the last few decades. That would take several hundred $billion to rectify, and with Iran's political situation, as it is, that is not going to come from investors at an affordable rate.

The loss of Iran's oil production may be the lesser of two evils. It may help protect the few Middle Eastern producers that can still supply high quality crude. If it keeps the price elevated Russia may not object too strenuously. Navigating through the end of the oil age will require the most carefully placed footing. So far Trump has done an astounding job, but we are moving through a mine field of potential disasters. One wrong step and &^%$#@!.
http://www.thehillsgroup.org/

dunce Fri, 07/13/2018 - 03:39 Permalink

There could be regime change in Iran and they stop funding and practicing terrorism. They could stop trying to build nuke bombs and missiles to destroy Israel. Then there would be no sanctions and the Iranian people would be much better off. Trump is not the problem.

Aussiestirrer Fri, 07/13/2018 - 06:41 Permalink

Petrol or gas as you call it in the US costs $1.20 US for a litre or $4.50 US per gallon in Australia and climbing💩

So enjoy the low prices👍🏻👍🏻👽