With mid-term elections approaching, he desperately wants lower prices at the gas station. But his aggressive foreign policy, endeavouring to isolate the Iranian regime is pushing the oil prices higher. This leaves him with little options. He needed a scapegoat and the Organisation of Petroleum Exporting Countries (Opec) is serving the purpose.

Last Thursday, President Donald Trump once against castigated the Opec, blaming them for high oil prices. In a tweet, he blasted Opec for continuing to “push for higher and higher oil prices.”

“The OPEC monopoly must get prices down now!” Trump said, adding that countries in the Middle East would not be “safe for very long” without protection from the United States.

The ongoing meltdown of the energy sector in Venezuela and the recent crisis in Iraq and Libya have contributed to tightening of the markets.

Yet, supply is ample. The latest International Energy Agency monthly oil report says global supply hit a record high in August at 100 million barrels per day (bpd). The month also saw Opec’s crude supply hit a nine-month high of 32.63m bpd. And the non-Opec output also went up by 2.6m bpd.

The US Energy Information Agency is now projecting the country’s oil output to continue to exceed Russian and Saudi production for the rest of 2018 and in 2019.

And in the meantime, the Russian crude output has also jumped to a new post-Soviet record. It is somewhere between 11.29m to 11.36m bpd, beating the previous record of 11.25m bpd set in October 2016, an anonymous Russian government official was quoted as telling the media.

Yet, prices continue to soar. And to a very great extent, Trump’s hardline stance on Iran is to be blamed, and not Opec.

The administration’s sanctions against the world’s fifth-largest oil producer will knock out a significant amount of supply at a time when it’s needed.

“The reality is the market is tight because Iranian sanctions are forcing countries to find alternatives,” Ben Cook, portfolio manager at BP Capital Fund Advisors was quoted as saying by the CNN.

Markets are definitely concerned. If there is a flare-up in the region, it would not only impact the Iranian output, but crude flowing through the strategic Straits of Hormuz could also be threatened. Markets are definitely aware and worried.

In recent weeks, Iran has threatened it would impede the flow of crude vessels from the narrow straits, a crucial chokepoint for oil shipments from the Gulf Arab states to the world. Almost one-fifth of the world’s traded oil passes through here. And Iran’s capacity to block or slow down the shipment cannot be completely discarded.

In fact, Iran’s Islamic Revolutionary Guard Corps held a naval exercise in the waterway last month, flexing its muscles and showing it has the capability to impede flow.

Indeed oil prices, that were approaching the $80 mark, receded on Trump latest tweet. Both, Brent and WTI took a turn downward after the tweets, and on Thursday at 10:30 am EDT, WTI crude was down 0.28 per cent at $70.57 and Brent Crude lowered 0.67pc to $78.39. But that is not the solution to the issue.

Earlier, oil prices were seen climbing after one of the Russian reconnaissance planes was shot down by Syrian defence systems. Russia blamed Israel for the loss. The incident increased threats to geopolitical stability in the oil-rich region adding to uncertainty in the global oil markets.

Prices were also up early last week, reacting to reports that Saudi Arabia would be comfortable letting them rise above $80 a barrel. President Trump didn’t like that – hence apparently the tweet.

Oil fundamentals are not too strong. They should drive the prices lower, many feel. Oil prices in the long-term will be $50 a barrel, insisted the Russian Energy Minister Alexander Novak, noting that the current $70-80 was driven by sanctions and will (only) be a phase in passing.

Reuters reported Novak as saying that the longer-term oil price at $50 per barrel range was based on projections by oil companies and analysts.

Although tweets blaming Opec may seem to work for a short span as it did last Thursday, yet it would solve the problem of high oil prices.

In the longer run, it is Trump policies, especially towards Iran, that would determine the future course of oil price trajectory.

Published in Dawn, September 23rd, 2018