Oil in Global Economy Series: Trump maintains pressure on Saudi Arabia as OPEC meets to discuss supply cuts

President Trump is constantly maintaining pressure on America’s Middle East ally Saudi Arabia against taking actions that would propel the oil prices significantly higher, as Saudi Arabia-led OPEC group is meeting at the OPEC headquarter in Vienna to discuss supply cuts with members, as well as non-OPEC countries led by Russia.

The President started pressuring Saudi Arabia in June when the price of Brent was hovering around $80 per barrel. He tweeted, “Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & disfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference...Prices too high! He has agreed!”

Data suggest that Saudi Arabia has indeed listened to the President, as latest Reuter’s survey shows, Saudi production reached 11 million barrels per day in November, which is almost a million barrel higher than it agreed to produce under the previous agreement.  

As the price declined rather sharply over the last two months, President Trump thanked Saudi Arabia in a tweet. We had argued that Saudi Arabia would comply with the President’s request as its own geopolitical tensions with Iran demands so. Since then, the geopolitical position of Saudi Arabia has significantly weakened over the murder of Jamal Khashoggi, who was killed at the Saudi Consulate in Istanbul, allegedly at the order of crown prince Mohammad bin Salman, who has denied the accusations. Amid this geopolitical crisis, President Trump has extended a favor to the Royal family announcing that America’s standing with its traditional partner, despite the incident. Now, he would expect a return of the favor by Saudi Arabia working to keep oil price in check.

As OPEC and non-OPEC leaders are meeting in Vienna on 6th and 7th of December to discuss production cuts, President Trump is keeping the pressure on. He tweeted, “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!”

At the same time, the markets are also keeping the pressure on OPEC. Brent crude is down 4.3 percent, in anticipation that OPEC would fall short in its production cut target amid the pressure from Trump. Brent is currently trading at $59.5 per barrel, and WTI at $8.4 per barrel discount to Brent.