Is oil heading for $100 a barrel? Or will Trump throw a spanner in the works?
The oil price is creeping up – something Donald Trump isn’t too happy about. John Stepek looks at whats behind the rise, and what Trump could do to stop it.
The oil price has been steadily climbing in recent weeks.
Brent crude the international benchmark is now solidly above $80 a barrel. Prices are up by about 40% on last year.
And we're starting to hear murmurings about the return of $100 a barrel something that just a few years ago, many were saying we'd never see again.
US president Donald Trump is none too happy about this. He's got mid-term elections coming up in November, and few things make your average American feel less cheerful about the economy than a rising price tag at the petrol pumps.
But can he do anything about it? You might be surprised.
"That's just Donald being Donald"
When Donald Trump first became US president, everybody was gobsmacked. And his behaviour following his appointment blatantly making stuff up, regularly ranting, being anything but diplomatic, and using Twitter to let off steam at all times of the day was shocking.
However, while that sort of behaviour can get you noticed at first, it rapidly loses its shock value after repeated use. People grow accustomed to it. They get that it's just your style, rather than indicative of any intent or ability to act.
So, for example, you have the audience in the UN laughing out loud yesterday when Trump said that he'd achieved more in two years, "than almost any administration in the history of our country". "That's just Donald being Donald", they're thinking.
And it's the same when he gives oil cartel Opec a rattling on Twitter or at the UN. His choice line this time was: "Opec nations are as usual ripping off the rest of the world. I don't like it and nobody should like it. We are not going to put up with these horrible prices much longer."
Everyone nodded along and chuckled. "That's just Donald being Donald." After all, what's he going to do?
What's driving the oil price higher?
Lots of things affect the oil price. For example, one thing that we tend to forget is that the oil price is partly a function of the dollar.
Most commodities are priced in dollars. So all else being equal (ie, assuming the supply and demand for the underlying commodity does not change), then a stronger dollar should drive down the dollar price of commodities, reflecting the fact that a dollar now buys more stuff. Equally, a weakening dollar should push the dollar price of commodities higher.
This isn't always what happens. You can get commodity prices rising at the same time as the dollar is rising, and vice versa. But the influence is there. So at least one reason for the recent jump in oil prices has been the weakening in the US currency.
However, we know that Trump is not desperately keen to have a stronger dollar. He's already made that pretty clear. After all, a stronger dollar typically isn't great news for stocks. And he wants them to keep rising too.
The other factor, of course, is supply. Iran has effectively been removed from the global oil supply picture by US sanctions. That leaves a big gap to be filled, and at the moment, Saudi Arabia-led Opec is not in the mood to pump any more oil to fill it.
Of course, the reason that Iran is no longer pumping as much oil is down to the US under Trump, withdrawing from the nuclear deal done under Barack Obama. So it's not as though Trump is likely to reverse that. Indeed, the US squeeze on Iran has been greater than expected.
As Trafigura oil trader Ben Luckock told Bloomberg, Iranian production "is going to be significantly less than it was, and probably lower than most people expected when sanctions were announced". He reckons oil will be back above $90 a barrel as a result, by the end of the year.
On top of that, you've got the ongoing collapse of Venezuelan production, which shows no real sign of turning around any time soon.
America's emergency oil stash
However, there's another option for Trump, if he can't get his way simply by "jawboning" the market lower.
The president has made it very clear that he doesn't like oil prices at these levels. If he decides that it's not OK to have Brent crude sitting at a four-year high right before Americans go to the polls, then there's an option.
Lots of countries have strategic reserves of vital commodities. For the Chinese, it's pork. For the Canadians, it's maple syrup (for those who missed the "great maple syrup heist" story from a few years back, I'm not joking).
For Americans, naturally, it's oil, in the form of the Strategic Petroleum Reserve. The US is sitting on around 660 million barrels. So if a president wants prices to fall a little, then he could always authorise the release of a few million barrels, just to take the edge off.
And the thing is, while Trump would no doubt cop a lot of flak for doing anything so blatantly political, he wouldn't be the first. Bill Clinton did the same thing back in 2000, notes Bloomberg.
The question is: would it help?
The answer to that is: maybe, but only a little, and only for a very short period of time. If pushed, reckons Bloomberg, the US could add another half a million barrels a day to supply. That's a lot of oil. But one commentator reckons that alone, it would "knock a couple of bucks off the oil price".
In short, for now, assuming that you're invested in oil companies rather than taking a highly-leveraged punt direct on the crude oil price itself, you're probably safe betting on oil prices staying where they are or going higher.
And rather than worry too much about Trump unleashing emergency supplies, you should pay attention to where the US dollar goes, and what Saudi Arabia and Russia do.