President of the United States of America, Donald Trump, yesterday called on the Organisation of Petroleum Exporting Countries (OPEC) to lower oil prices because the world cannot handle a hike.
Using his favourite means of communication – Twitter – President Trump lamented that the commodity is becoming too expensive at $64.86 per barrel. This is not the first time he is making such a demand in recent times.
Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!
— Donald J. Trump (@realDonaldTrump) February 25, 2019
A dilemma for OPEC?
In light of Trump’s recent meddlings, Saudi Arabia and her petroleum exporting allies (Nigeria inclusive), are once again faced with the dilemma of having to choose between pleasing the US leader whilst risking decreased crude earnings, or defying his demands in order to protect their interests.
But defying Trump, whose country is among the world’s largest crude producers, could come at a price. This is because Donald Trump could enforce legislation that shakes the group to its foundations. Said legislation typically come in the form of economic sanctions imposed on countries.
But can Trump really shake up OPEC?
Note that even though the USA is a major crude producer, it does not belong to OPEC. This, therefore, makes it a lone voice in the crude market, where OPEC (with its many member countries), more or less dominates.
You are not the President of OPEC. You have no say in what OPEC does.
— Ed Krassenstein (@EdKrassen) February 25, 2019
Meanwhile, OPEC had in the past heeded Trump’s demand. Back in the Summer of 2018, the US President successfully ‘coerced’ Saudi Arabia into increasing its output, a move that ultimately lowered global crude prices.
However, further calls by Trump to keep output high were disregarded by OPEC. This is because late last year, the organisation announced an output cut of 1.2 million barrels per day. The implementation of this policy helped to save global crude prices which, until then, were on a steady decline.
Note that the international crude market works with the simple law of demand and supply, such that lower the supply, the higher the prices.
Why doesn’t America’s Trump want crude prices on the high side?
As one of the world’s most industrialised countries, the United States of America has a voracious appetite for crude. In other words, the commodity is needed in large quantity to power its many industries.
Consequently, the country keeps importing in order to make up for its crude needs. The implication of this, therefore, is that higher crude prices is literally not good for the American economy.
But you do realise an increase in oil prices will have a huge negative effect on the US economy, right? That this is not a good thing?
— Royal Thomas (@thereald0tt) February 25, 2019
But it isn’t all about Trump and his America
It is impressive that President Donald Trump is eager to protect the interest of his country and his people. But the global crude market is not all about him. OPEC countries like Nigeria depend a lot of crude exportation to sustain their economies. Therefore, the higher the crude prices, the better.
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