The Organization of the Petroleum Exporting Countries (OPEC) has a long history of trying to drive up the price of oil.
Their main tool is restricting supply. Their main obstacle is enforcing these supply cuts among member nations, who are prone to cheating.
However, the most recent Saudi led initiative to cut production has seen a surprising level of compliance from OPEC members.
Coupled with worries about the Syrian conflict spiralling out of control in the oil rich Middle East, both West Texas Intermediate crude oil and Brent crude are trading near their highest levels in three years. (WTI is at US$67.99 per barrel and Brent is US$74.50.)
Can the higher oil prices continue?
With North American shale oil producers generally turning a profit at prices above US$50 per barrel, they have a lot of incentive to increase production at today’s prices. That limits OPEC’s ability to cut supply and drive the price above US$80, where the Saudis would like to see it.
Donald Trump, for one, has been a long time proponent of cheap oil. And why not? We’ve never understood how more expensive energy is good for anyone…save the producers and their shareholders. And, of course, governments eager to stoke inflation.
Here’s what Trump tweeted back in 2012:
And here’s his tweet from last Friday:
Despite what his own ego might be telling him, Trump cannot dictate the global oil price with a few tweets.
However, he does have a large number of levers he can pull to increase supply. First, he controls the US Strategic Petroleum Reserve. A reserve that holds more crude oil — ostensibly for emergencies — than any other nation in the world.
Trump also has the ability to push through more drilling permits in the US. And to offer incentives for increased exploration and production.
Lower prices will be celebrated by his core supporters, regardless of where the oil comes from. Cheaper energy will also spur on US manufacturing, a sector Trump is working hard to revive.
Adding it all up, we expect a steep retracement in the oil price over the coming months. Especially if Trump can work with Vladimir Putin to turn down the heat in Syria.
PS: The global elites are waging a stealth war on cash even as you read this. This free report reveals their real motivations. And three actions you can take today to help safeguard your financial privacy.