President Trump recently took credit for the plunge in oil prices since early October. As I noted in a recent article, it’s true that the President’s actions have contributed to the drop in oil prices, but at a cost that has been largely ignored.
This week the President decided to share the credit for lower oil prices on Twitter:
President Trump thanks Saudi Arabia for low oil prices.
How President Trump Affected Oil Prices
The trade war with China resulted in China halting imports of U.S. oil. Prior to that, U.S. oil producers had been shipping half a million barrels a day to China. This loss of market hurt U.S. oil producers, and helped push inventories higher in the U.S. This further hurt U.S. oil producers by pushing prices down.
Second, leading up to the implementation of sanctions on Iran that would cut off their oil exports, President Trump persuaded Saudi Arabia to begin pumping more oil to compensate for Iran’s pending lost exports.
Then, just before sanctions were set to go into effect, President Trump announced that waivers would be given to a number of countries to allow them to continue to import Iranian oil. Among those countries was China, which means U.S. oil producers lost business to Iran as a result of this decision.
Saudi Arabia was caught off guard by the decision to grant waivers, which resulted in too much oil in the market. The price of oil predictably plunged, but Saudi Arabia has vowed to cut production. They are also working with other countries to engineer an even bigger production cut.
The President is now attempting to pacify Saudi Arabia by giving the country a pass on the murder of dissident journalist Jamal Khashoggi in October, and by publicly thanking them on Twitter. But that will be unlikely to compensate for billions in lost revenue over what Saudi Arabia undoubtedly considers to be a double cross.
So the cost of lower oil prices has been the loss of a growing market for U.S. oil producers, a weakening of the sanctions against Iran, and an increase in mistrust from Saudi Arabia.
Low Oil Prices Hurt the U.S. Oil Industry
President Trump seems to have a blind spot on oil prices that might have been appropriate a dozen years ago when the U.S. was a net importer of 13 million barrels a day of petroleum and petroleum products. But this summer U.S. net imports fell to just under two million barrels a day, and they are on a trajectory to reach zero in a few years. That is, unless we enact policies that hurt the U.S. oil industry.
Consider the logic of the tariffs President Trump has pushed. Yes, they will drive up prices for U.S. consumers, but the argument is that it will ultimately benefit the U.S. by bringing manufacturing back to the country. How is this different from high oil prices? They incentivize U.S. oil producers, which lowers our dependence on foreign oil. The impact on consumers seems to be a political consideration when it comes to gasoline prices, but not on all of the products that are being affected by tariffs.
President Trump has an outdated view on oil prices, and one that is inconsistent with his logic on tariffs. If he wants to ensure a robust U.S. oil industry that could increasingly marginalize Saudi Arabia’s influence, he needs to stop undermining the U.S. oil industry.