Trump’s incredible 180 on OPEC, oil and free markets
Since winning the presidency, Trump has repeatedly hammered OPEC for engineering higher oil prices to hurt American drivers.
Flash forward to 2020: Instead of slamming OPEC for artificially restraining production, Trump is urging the cartel to do just that.
“It’s amazing to have Trump get in the middle of this,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNN Business. “Think about the 180: For years, Trump hated collusion among the producers and wanted to get rid of OPEC.”
Texas is a huge prize in 2020
“What has changed is the political equation: Donald Trump cannot win reelection without Texas. It’s as simple as that,” said Greg Valliere, chief US policy strategist at AGF Investments.
Not only is Texas the second-biggest electoral prize (after California), it’s also by far the nation’s largest oil producer. In fact, Texas pumps more oil than every OPEC nation not named Saudi Arabia.
Navigating this situation is a delicate balance. The White House doesn’t want oil bankruptcies and job losses on its hands. But Trump doesn’t want to be seen helping oil CEOs and Saudi Arabia at the expense of average Americans who want cheap gas prices.
‘I would always raise hell with OPEC’
The president has acknowledged his evolving views.
“You always get a little torn,” Trump said on March 20. “Until we became the leading producer, I was always for the person driving the car and filling up the tank of gas…If (prices were too high, I would always raise hell with OPEC.”
Nearly 100 US oil and gas producers could file for Chapter 11 over the next year, Buddy Clark, co-chair of the energy practice at Houston law firm Haynes and Boone, told CNN Business.
And that may be the optimistic view.
Rystad Energy warned this week that 140 US oil producers could file for bankruptcy this year if oil stays at $20 a barrel, followed by another 400 in 2021.
Will Texas cap output?
Some independent oil producers are pushing Texas to — for the first time in more than 40 years — limit the state’s output.
Ryan Sitton, a commissioner on the Railroad Commission of Texas, the state’s energy regulator, even held a call Thursday with Russia’s energy minister to discuss options.
“While we normally compete,” Sitton said in a tweet, “we agreed that #COVID19 requires unprecedented levels of int’l cooperation.” He added that he will speak to Saudi Arabia’s energy minister soon.
Shale pioneer Harold Hamm and others are pushing for Trump, the self-proclaimed “Tariff Man,” to sanction OPEC by enacting tariffs that would punish Russia and Saudi Arabia for their ruinous oil war. But the American Petroleum Institute, the nation’s largest oil lobby, is urging Trump to avoid intervening in free markets.
Trump has so far taken modest steps, including instructing the Energy Department to take advantage of cheap prices by filling up the nation’s emergency stockpile of crude.
Debate over free markets
OPEC has signaled it isn’t willing to keep cutting production — unless other countries join in and do so, too.
But it’s not clear how the United States would enact its own production cuts. US output is controlled by thousands of different companies across the nation who all have their own competing interests.
The irony calling on OPEC to come to the rescue is that Trump and others for years have complained that OPEC distorts free markets.
And Now that Saudi Arabia and Russia have stopped artificially restraining their production, they’re being urged to step back in to calm markets.
“This is the free market. We are living in the world of NOPEC right now,” RBC’s Croft said. “OPEC’s cuts gave US producers a vital lifeline. Now that the lifeline has been withdrawn, you have figures in Washington wanting sanctions against OPEC.”