If he cannot arm-twist OPEC, he may unleash America’s Special Petroleum Reserve
.. markets are being buffeted by three countervailing forces unleashed by President Donald Trump:
- his geopolitical agenda, particularly sanctions on Iran;
- his domestic political agenda, to lower American petrol prices before the mid-term elections; and
- his looming trade war with China.
If he does not get his way, he may have a dangerous weapon up his sleeve—America’s Strategic Petroleum Reserve (SPR). His meddling risks making OPEC, the oil cartel that is a focus of his wrath, look like a paragon of predictability.
.. adding fuel to the price rally is the Trump administration’s pressure on America’s allies to cut oil imports from Iran to zero by November 4th, or face punishment for violating American sanctions. This is more draconian than expected.
.. on July 2nd that more than 50 international firms, including energy ones, had agreed to pull out of Iran. Though America may allow some countries—possibly Turkey, France and others—to reduce imports rather than cut them completely, it will not grant any waivers.
.. a “zero-barrel” response could see between 800,000 and 1.05m b/d of Iranian crude come off the market, with the squeeze starting in September, 60 days of shipping time before the sanctions kick in.
.. In an interview on Fox TV aired on July 1st, he ordered OPEC to stop manipulating the market, threatening some of its members with the loss of American protection if they do not.
.. the highest level of production Saudi Aramco, the state-owned oil giant, has tried out for any length of time is 11m b/d (it is about 10.3m b/d at the moment). But keeping production at that level for several months would damage its reservoirs. Pumping 12m b/d would also take spare capacity in the global oil market to uncharted lows, exposing it dangerously to supply shocks.
.. Complicating things is the imminent risk of an America-China trade war. China has threatened tariffs on American oil imports if retaliation meets more retaliation.
.. China may pay no heed to American sanctions on Iran, which would further stoke tension between the two.
.. These factors, some bullish for oil prices, some bearish, may offset each other. But they have already had the unfortunate consequence of putting Mr Trump alongside the rulers of Saudi Arabia and Russia in the driving seat of global oil policy. Shale producers, who cannot respond to price signals anything like quickly enough to please Mr Trump, are sidelined
.. Analysts predict that if petrol prices continue to rise ahead of the mid-terms, Mr Trump will use a release of up to 30m barrels from the SPR to flood the market. That would be tantamount to launching an oil war against OPEC and Russia, in addition to the trade war. But it cannot be ruled out.