Trump’s tweets on OPEC have ‘limited’ impact on oil prices

US President Donald Trump's tweets nudging OPEC to help ease rising oil prices have had a limited impact on crude prices, as there are a number of factors that are currently at play in the global markets, analysts have told Argaam.

Oil prices have been rising amid ongoing supply concerns arising out of dwindling Venezuelan production, tensions in Libya and the US push to reduce Iranian exports.

“Donald Trump’s tweets are only one element in a multifaceted set of factors that are driving oil markets,” Ehsan Khoman, head of research and MENA strategist at MUFG, told Argaam.

The US President has over the weeks tweeted about the need to reduce prices while also asking OPEC to do more to help ease the pressure on importers.

Hope OPEC will increase output substantially. Need to keep prices down!

— Donald J. Trump (@realDonaldTrump) June 22, 2018

In response, OPEC president Suhail Al Mazrouei said OPEC was doing its part to rebalance the market and that the group alone could not be blamed for all the industry’s problems.

Iran, on its part, accused the US President of creating “uncertainty in the market” through his tweets.

The cartel in its June meeting decided to ease its 2016 supply-curb deal and increase production by 1 million barrels per day.

“The recent volatility witnessed in oil prices has less to do with Trump’s tweets, and more to do with geopolitical tensions stimulating expectations of tighter global supply,” Lukman Otunuga, research analyst at FXTM, told Argaam.

To check escalating prices, the US, a major producer of shale oil, could consider increasing its own output.

This option, however, is not feasible given the difference in crude grades that are affected by outages in different parts of the world and US oil, Khoman said.

“WTI based in the US is a lighter and sweeter crude oil that is more suitable for the production of gasoline,” Khoman said. “Brent, which trades on the Intercontinental Exchange, has higher sulphur content and is more appropriate for the production of distillate products like heating oil, jet and diesel fuels.”

Other factors impacting oil prices include the ongoing trade dispute between the US and China, as well as comments from US Secretary of State Mike Pompeo, who is reported to have said the US will consider some countries' requests for exemptions from oil sanctions that will go into effect from November.

Crude oil prices fell on Wednesday following the latest updates from the US, with Brent last down 2.1 percent at $77.22 per barrel – declining from above $79-level it hit yesterday.

“The threat of a global trade war negatively impacting demand for commodities remains a significant risk to oil prices,” Otunuga said.

The US is considering exemptions to oil imports from Iran after a “handful” of countries made such requests, Germany-based Commerzbank said in a note on Wednesday.

“It is quite possible that India is one of them,” it added.

The lender noted that China could also continue to import oil from Iran, and it may cut imports from the US.

“After all, it can be assumed that US crude oil will also be slapped with an import tariff in the next round of retaliatory measures against the US punitive tariffs,” Commerzbank said.

“Initially, China had refrained from doing this.”

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com