Trump’s ‘crude’ tweet diplomacy is at work - again. But, will it produce the desired results now, remains a big if?

Earlier, last week, President Trump tweeted: “Oil prices getting too high. Opec, please relax and take it easy. World cannot take a price hike - fragile!”

This was the latest ‘crude’ tweet and the first in 2019 by President Trump in a series of social media messages about oil prices since April 2018.

Oil futures tumbled more than 3 per cent after this mesage, their largest daily percentage drop this year. Until then, crude prices had risen by about 20pc since the start of the year when the Organisation of the Petroleum Exporting Countries (Opec) and non-member producers, led by Russia, agreed to cut production by 1.2 million barrels per day (bpd), so as to tackle the global glut.

The US embargo on Iranian and Venezuelan crude, have also helped the process.

Yet, at least for the moment, there does not seem much enthusiasm among the oil producers to pay heed to what the president was tweeting.

Last time when Trump tweeted, a combination of events was about to overtake the oil markets. The request was made just before the November mid-term congressional elections in the US, and politically, Trump needed oil prices to stay low at gas stations.

Oil producers understood this need of the Trump administration. Further, the sanctions on Iran were also to take effect. That carried its own implications to the overall global energy demand-supply balance.

Under pressure from Trump, the producers — Saudi Arabia in particular — hiked output through November.

Politically, they could not have afforded to say no to the Trump tweets.

After all, behind the scenes, Saudi Arabia has been urging Washington to declare the 2015 nuclear agreement with Iran null and void.

Once Trump annulled the agreement, Riyadh was obliged, to pay attention to the Trump request. They complied. Crude taps were opened up.

But then, Washington surprised the markets by granting waivers to eight Iranian oil buyers, allowing them to keep importing Iranian crude. Oil prices started to nosedive, catching Saudi Arabia flat-footed. According to many accounts, this made Riyadh furious at the president for what they saw as a betrayal of trust.

Consequent to the waivers, Brent futures fell 22pc in November 2018. With prices falling, and a glut continuing to build up, Opec+ had to act — again!

In December, they struck an agreement to renew their output restraint arrangement from January, agreeing to cut output by 1.2mbpd.

In the wake of the latest tweet from President Trump, many analysts felt another round of waivers on the Iran sanctions could be under consideration. “And then you have to believe that another round of waivers on the Iran sanctions has to be on the table, and I think that’s the secondary implication from that tweet,” John Kilduff of energy hedge fund, Again Capital, was quoted as saying.

Once bitten, twice shy, Riyadh is overly cautious now. It doesn’t want the repetition of the November saga. Since November, Saudi Arabia has sharply reversed course. After its production surged to a record 11.1mbpd in November, it acted to throttle it back to 10.2mbpd.

Published in Dawn, March 3rd, 2019