Oil taps, Trump and tweets
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Some of you may recall an article we wrote on the 29th of September called ‘Oil Taps’. In our ‘beyond the headlines’ weekly we set out to explain factors influencing the oil price. We highlighted initiatives underway by OPEC to stimulate supply as well as pointing out that Russia was stepping up their production to optimise revenue: In other words, co-ordinated efforts that could restrain price rises and possibly drive prices down.
Despite the initiatives by producers, undertaken in June, the oil price continued to rise, going above $80 per barrel. This spurt was, we think, due in large part to sanctions on Iran being discussed by the US. It now seems that speculators, eyeing possible supply interruption, pushed prices higher than warranted by fundamentals.
The result from prices moving higher was the following angry tweet from Donald J Trump:
After we saw his distinctive trademark rant, we wrote: “Trump’s tweet to get prices down comes after initiatives are already underway to increase supply. If prices go lower, do not be surprised if you see another Trump tweet. It may look like this- ‘My instruction to get oil prices down worked! This is to the benefit of the world and US citizens’.”
The following tweet appeared on Wednesday evening, two months down the line.
We didn’t get all his words right, but we were close!
Incidentally, the lower price of $54 he quotes is for West Texas Intermediate (WTI) and the higher price of $82 is Brent Crude. This creates the maximum price difference but it is not comparing apples to apples. To be accurate and correct he should use the same series for the higher and lower prices; WTI’s highest comparable price is $76 and Brent Crude’s lowest comparable price is $62. Fake news anyone?
Source: Bloomberg, November 2018