Trump's tweet scatters the oil bulls

A tweet from Donald Trump in favour of lower oil prices has put the cat among the pigeons.


"Donald Trump has just pulled the rug out from underneath those betting on an oil-price rally," says David Sheppard in the Financial Times. On Twitter last week he warned the oil producers' cartel Opec that oil prices were "getting too high" and asked them to "relax and take it easy", given that the global economy is "fragile".

This comes in the wake of an oil-price rise (as measured by the Brent crude benchmark) of almost 25% so far in 2019. Oil producers had slashed production in what Goldman Sachs analysts referred to as a "shock and awe strategy". Opec and the other big producer, Russia, have cut output from 31.6 million barrels a day (mbpd) in December to 30.8 mbpd in January.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Meanwhile, oil-producing Venezuela has been in meltdown, and Iran's production is limited by US sanctions. Dwindling supply had bolstered bullish sentiment. But only minutes after Trump's tweet, the oil price dropped by 2.5%. The tweet's impact illustrates the oil bull's "shaky foundations", says Sheppard.

US shale output is in full flood. In the past year, US oil production has risen bytwo mbpd to a record 12 mbpd in the past year. It is expected to surpass 24 mbpd over thenext six years, says Reuters. Last year, American oil producers experienced pipeline bottlenecks, but those should ease by the end of 2019.

Advertisement - Article continues below

ExxonMobil and Chevron, the two largestUS oil groups, have sharply lifted their expectations of output. For example, Exxon has revised its projection ofoil and gas production in the Permian region of Texas and New Mexico from 600,000 barrels per day to one milliona day in 2024.

The oil market is in a "tugof war" between Opec and shale, as Darrell Fletcherof Huntington Bank told Reuters. And the US team is gaining strength.




Commodities look cheap

Gold may be on a bull run, but industrial commodities, including copper, zinc and aluminium, remain cheap.
17 Jan 2020
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019

Brace yourself for pricier oil

Global growth, and hence demand for oil, could surprise on the upside next year, leading to a bounce in the oil price.
29 Nov 2019

Most Popular

Pension tax

Why it makes sense to scrap higher-rate pensions tax relief

The point of pensions tax relief is to keep you out of the means-tested benefits system. The current system is ridiculously generous, says Merryn Some…
24 Feb 2020
Buy to let

Come back buy-to-letters, all is forgiven

The government is winning its war against small private buy-to-let landlords. But who benefits?
23 Feb 2020

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019