Trump says “fragile” oil market behind decision on Iran waivers

President Donald Trump on Wednesday claimed credit for falling oil prices, glossing over market forces that knocked crude futures from four-year highs last month. Trump also appeared to hint that his administration may not tighten sanctions on Iran’s oil exports if crude prices start rallying again, saying the measures will “maybe” get tougher. The president did not clearly elaborate on why he deserves credit for the pullback in oil markets, but he linked falling prices to his disdain for the 15-nation OPEC cartel and his administration’s Iran policy. The Trump administration on Friday announced it would grant sanctions waivers to eight countries, which allow them to continue importing Iranian crude for 180 days without fear of reprisal from the United States. The Trump administration restored sanctions on Iran, OPEC’s third-biggest oil producer, on Monday. “I don’t want to drive oil prices up to $100/bbl or $150/bbl,” Trump said during a news conference at the White House on Wednesday.

The waivers are expected to last 180 days, though they can be extended. The decision to issue waivers caused a split among some Trump aides and conservative allies. “I gave some countries a break on the oil,” Trump said during a lengthy, wide-ranging press conference the day after Republicans lost control of the House of Representatives in the midterm elections. “I did it a little bit because they really asked for some help, but I really did it because I don’t want to drive oil prices up to $100 a barrel or $150 a barrel, because I’m driving them down. “If you look at oil prices they’ve come down very substantially over the last couple of months,” Trump said. “That’s because of me. Because you have a monopoly called OPEC, and I don’t like that monopoly.” Oil prices have tumbled as much as 20 percent from four-year highs on Oct. 3. However, the decline since Trump officials first announced the waivers on Friday has been significantly smaller — about 1 percent for international benchmark Brent crude and 3 percent for U.S. crude.

Much of the losses in the oil market over the past five weeks correlate to a sell-off in global markets that saw investors dump risk assets including crude oil futures. During the October swoon, the S&P 500 posted its worst monthly drop in seven years. Another factor that took the froth out of the oil market last month was the growing consensus that global oil consumption will not expand as much as previously anticipated. Forecasters are knocking down their projections for oil demand due to concerns about global economic growth because of Trump’s trade dispute with China and currency weakness in emerging markets. Trump’s focus on global oil prices could constrain his ability to end the waivers if other countries can’t or won’t compensate for the reduction of Iranian oil on the global market.

Trump can claim some credit for the third factor behind the oil price pullback. Output from Saudi Arabia, Russia and other crude-exporting nations is on the rise, and analysts generally believe that’s in part because the Trump administration asked the Saudis to pump more oil to offset the impact of sanctions on Iran. Administration officials estimate that Iranian oil sales have been reduced by about one million barrels per day since May, costing the country about $2.5 billion in revenue. OPEC and its oil market allies were also concerned that rising prices would shrink demand for oil. That’s another reason the producers agreed to increase output earlier this year, partly reversing a policy of limiting supply. That policy, in place since 2017, helped end a historic oil price collapse that punished U.S. energy companies and oil-exporting nations alike.

While Trump frequently criticizes OPEC publicly, his administration actually depends on the cartel to offset the impact of its Iran policy. Specifically, Trump relies on top exporter Saudi Arabia to leverage its influence over other OPEC members to increase output and prevent oil prices from spiking as Iran’s exports dwindle. In fact, oil market analysts broadly view Trump’s decision to restore sanctions on Iran as a major catalyst for higher crude costs. Oil prices ran up about $7 a barrel in the month before Trump announced he was abandoning a nuclear accord with Iran and restoring sanctions on the Islamic Republic. Last month, uncertainty around the severity of the sanctions and their impact on global oil supplies pushed U.S. crude to nearly $77 a barrel and Brent to more than $86, their highest levels since late 2014. Trump imposed the sanctions on dealings with Iran’s oil and financial industries Monday following his decision to withdraw from the 2015 nuclear agreement with the Islamic Republic. “The rally has been driven by fears that the decline in Iran exports exceeds remaining OPEC spare capacity,” Goldman Sachs wrote last month. “Key to short-term fundamentals — and price action is the risk that Iran exports fall faster and more than new capacity can ramp-up, with high uncertainty on the level of US potential waivers.

Those fears have since eased, but a committee of OPEC members and allied countries recently warned that producers may begin cutting output once again. Russia’s TASS news agency reports that Russia and Saudi Arabia are in bilateral talks to orchestrate another round of output cuts when producers meet next month. Eight nations including China, India and Turkey received temporary waivers allowing them to continue buying Iranian crude, though the administration says they need to show that they are working to get imports to zero. Trump said oil prices could easily spike and suggested his administration could moderate its Iran policy. “We’re going to let some of the oil go out to these countries that really do need it because I don’t want to drive the oil prices up to $100 or $150, which could happen very easily. It’s a very fragile market. Very, very fragile”.

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