Oil Prices Fall After Trump's Call for Lower Prices

Oil prices fell on Thursday following President Donald Trump's announcement that he would ask Saudi Arabia and OPEC to reduce prices. In an address to the World Economic Forum, Trump stated, "I'm also going to ask Saudi Arabia and OPEC to bring down the cost of oil." This comment came as a surprise to many, as the U.S. has historically used its influence over global oil markets to maintain its geopolitical interests.



The U.S. crude oil benchmark, West Texas Intermediate (WTI), fell 85 cents, or 1.13%, to $74.59 per barrel, while the global benchmark, Brent crude, dropped 73 cents, or 0.92%, to $78.27 per barrel. This decline in oil prices can be attributed to the uncertainty surrounding the potential impact of Trump's request on global energy dynamics.



President Trump's intervention in oil prices during his first term significantly influenced global energy market dynamics. He established a carefully managed oil price range, known as "The Trump Oil Price Range," with a lower part of US$40-45 per barrel of Brent and an upper part of US$75-80 per barrel. This range was crucial for the U.S. shale oil industry's profitability and U.S. economic growth, as a gasoline price of under US$2 per gallon has historically been most advantageous for the U.S. economy.

Trump's preferred method of dealing with attempts to disrupt this oil price range was demonstrated early in his first presidency. In 2018, Saudi Arabia and OPEC attempted to push oil prices above the US$80 per barrel Brent ceiling by orchestrating production cuts. Trump warned Riyadh to stop raising prices, stating, "OPEC and OPEC nations are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it. We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices. We want them to start lowering prices and they must contribute substantially to military protection from now on." Following Trump's warnings, Saudi Arabia increased production, and oil prices came down again.

In his second term, Trump is expected to continue his influence over oil prices, as indicated by his comments on the campaign trail and in his "Agenda47" blueprint. His handling of OPEC members and Saudi Arabia will likely remain the same as it was in his first term. There are two vital reasons why the Trump Oil Price Range is so critical to the interests of Trump personally, his Republican Party, and the U.S. more broadly. One reason is economic, as historical data highlights the close correlation between oil prices and the wider health of the U.S. economy. Every US$10 per barrel (pb) or so change in the price of crude oil results in around a 25-30 cent change in the price of a gallon of gasoline, and for every 1 cent that the average price per gallon of gasoline rises, more than US$1 billion or so per year in consumer spending is lost. The second reason is political, as sitting U.S. presidents have won re-election 11 times out of 11 if the economy was not in recession within two years of an upcoming election. Therefore, maintaining a stable oil price range is crucial for Trump's re-election chances and the success of his party in mid-term elections.

Geopolitical tensions, particularly between the U.S. and OPEC nations like Saudi Arabia and Iran, significantly impact oil prices and the broader energy market. These tensions can lead to supply disruptions, changes in production quotas, and shifts in global energy dynamics, all of which affect oil prices. For instance, the U.S. withdrawal from the Iran nuclear deal in 2018 and the reimposition of sanctions on Iran led to a significant reduction in Iran's oil exports, tightening global oil supply and contributing to higher oil prices. Additionally, the U.S. has historically used Saudi Arabia's influence to counterbalance Iran's power in the Middle East, employing a "divide and rule" policy to maintain its strategic interests in the region.

In conclusion, President Trump's intervention in oil prices has significantly influenced global energy market dynamics, with the Trump Oil Price Range playing a crucial role in U.S. economic growth and political stability. Geopolitical tensions between the U.S. and OPEC nations like Saudi Arabia and Iran also impact oil prices and the broader energy market, as demonstrated by the recent decline in oil prices following Trump's call for lower prices. As the U.S. continues to assert its influence over global oil markets, the dynamics of the energy market will remain a critical factor in the country's geopolitical strategy.