Trump Thinks He Can Magically Control the Price of Oil

Source: The New Republic · Bias: Left

Summary

Amid the deadly, illegal, half-baked war the U.S. and Israeli governments are waging against Iran, Donald Trump has managed to stick to his morning routine of shouting nonsense on social media. At 7:23 a.m. on Monday, Trump announced on Truth Social that the United States had engaged in “VERY GOOD AND PRODUCTIVE CONVERSATIONS” with Iranian negotiators “REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.” The administration was sufficiently satisfied with the progress of those talks, he added, that it would postpone for five days—i.e., until markets close at the end of the week—the military strikes on Iranian power plants and energy infrastructure that he’d promised the previous night. Brent and West Texas Intermediate Crude oil futures promptly plummeted. The Dow Jones Industrial Average and S&P 500 accordingly posted their biggest one-day gains since February. Iran’s Foreign Ministry denied that the conversations Trump boasted about ever happened—but not before the oil traders who’d that morning placed $580 million worth of bets on oil futures dropping got a lot richer.“The price of oil will drop like a rock as soon as a deal is done. I guess it already is today. We have a very serious chance of making a deal. That doesn’t guarantee anything,” Trump mused a few hours later, while talking to reporters. “All I’m saying is we are in the throes of a real possibility of making a deal. And I think if I were a betting man, I’d bet for it.” Despite the president’s long-running fixation on oil—in the 1980s, Trump mulled drilling for it in Manhattan—his understanding of the industry has historically been a characteristically simplistic one: price down—good, price up—bad. He does seem to have figured out that well-timed statements can influence whether that price goes up or down; some unusually prescient oil traders got a lot richer this week as a result. But are Trump’s attempts to change the price of oil good for anyone who isn’t a betting man?Oil isn’t cryptocurrency, or the stock market. It is a material thing that needs to be drilled, transported, stored, refined, sold, and delivered, all at considerable cost, all over the world. In fact, it’s many things: Different grades of crude have to be processed in different facilities, into different products. Benchmark prices and futures—somewhat recent phenomena—should ostensibly enable global oil market participants around the world to manage risks, and respond to events that might impact investment and purchasing decisions. Trying to rig oil markets like a casino’s slot machine makes the information those numbers are supposed to provide less useful, warping perceptions of how much barrels actually cost and what that entails for the broader economy. It could also be making it easier to ignore potentially cataclysmic levels of disruption.The disjuncture between “paper” crude prices and realities on the ground has many experts worried. “The market is trying to grind higher because the role of this market is to anticipate and look forward to what’s coming,” said oil market researcher Rory Johnston, author of the Commodity Context newsletter. But “anytime prices get very high at all—much higher than $100 or $110 per barrel—we see pretty concerted efforts in the White House to jawbone the price lower.” The result is an “ever-larger dislocation between future markets trying to handicap risk and physical markets, particularly in the Gulf region, reflecting this deep, deep tightness.” At CERAWeek—the annual global energy confab hosted by S&P Global—Chevron CEO Mike Wirth similarly noted that the market is trading on “scant information,” with prices that likely don’t reflect the actual physical shortages that mount every day as ships are unable to pass through the Strait of Hormuz. “We got a lot of oil and gas now that is not flowing into the market,” he said. “There really is a difference in terms of physical supply this time versus prior incidents.”Wirth is underselling the enormity of this situation here. Market analysts have long considered the closure of the Strait of Hormuz—a closure Iran enforced in reaction to the U.S. and Israel’s illegal war—a remote worst-case scenario. One-third of the world’s traded crude oil flows through that narrow passageway, along with a fifth of traded liquefied natural gas, or LNG; one-third of fertilizers; two-fifths of helium; and nearly one-half of sulfur. The Gulf’s abundant supplies of oil and gas are used to create feedstocks for a range of refined products that are critical to everything from food production to data centers. Upward of 15 million barrels of crude oil are being kept out of export markets each day the Strait of Hormuz remains closed, bringing the total so far to roughly 345 million barrels.

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Trump Thinks He Can Magically Control the Price of Oil
The New Republic

Trump Thinks He Can Magically Control the Price of Oil

Left

Amid the deadly, illegal, half-baked war the U.S. and Israeli governments are waging against Iran, Donald Trump has managed to stick to his morning routine of shouting nonsense on social media. At 7:23 a.m. on Monday, Trump announced on Truth Social that the United States had engaged in “VERY GOOD AND PRODUCTIVE CONVERSATIONS” with Iranian negotiators “REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.” The administration was sufficiently satisfied with the progress of those talks, he added, that it would postpone for five days—i.e., until markets close at the end of the week—the military strikes on Iranian power plants and energy infrastructure that he’d promised the previous night. Brent and West Texas Intermediate Crude oil futures promptly plummeted. The Dow Jones Industrial Average and S&P 500 accordingly posted their biggest one-day gains since February. Iran’s Foreign Ministry denied that the conversations Trump boasted about ever happened—but not before the oil traders who’d that morning placed $580 million worth of bets on oil futures dropping got a lot richer.“The price of oil will drop like a rock as soon as a deal is done. I guess it already is today. We have a very serious chance of making a deal. That doesn’t guarantee anything,” Trump mused a few hours later, while talking to reporters. “All I’m saying is we are in the throes of a real possibility of making a deal. And I think if I were a betting man, I’d bet for it.” Despite the president’s long-running fixation on oil—in the 1980s, Trump mulled drilling for it in Manhattan—his understanding of the industry has historically been a characteristically simplistic one: price down—good, price up—bad. He does seem to have figured out that well-timed statements can influence whether that price goes up or down; some unusually prescient oil traders got a lot richer this week as a result. But are Trump’s attempts to change the price of oil good for anyone who isn’t a betting man?Oil isn’t cryptocurrency, or the stock market. It is a material thing that needs to be drilled, transported, stored, refined, sold, and delivered, all at considerable cost, all over the world. In fact, it’s many things: Different grades of crude have to be processed in different facilities, into different products. Benchmark prices and futures—somewhat recent phenomena—should ostensibly enable global oil market participants around the world to manage risks, and respond to events that might impact investment and purchasing decisions. Trying to rig oil markets like a casino’s slot machine makes the information those numbers are supposed to provide less useful, warping perceptions of how much barrels actually cost and what that entails for the broader economy. It could also be making it easier to ignore potentially cataclysmic levels of disruption.The disjuncture between “paper” crude prices and realities on the ground has many experts worried. “The market is trying to grind higher because the role of this market is to anticipate and look forward to what’s coming,” said oil market researcher Rory Johnston, author of the Commodity Context newsletter. But “anytime prices get very high at all—much higher than $100 or $110 per barrel—we see pretty concerted efforts in the White House to jawbone the price lower.” The result is an “ever-larger dislocation between future markets trying to handicap risk and physical markets, particularly in the Gulf region, reflecting this deep, deep tightness.” At CERAWeek—the annual global energy confab hosted by S&P Global—Chevron CEO Mike Wirth similarly noted that the market is trading on “scant information,” with prices that likely don’t reflect the actual physical shortages that mount every day as ships are unable to pass through the Strait of Hormuz. “We got a lot of oil and gas now that is not flowing into the market,” he said. “There really is a difference in terms of physical supply this time versus prior incidents.”Wirth is underselling the enormity of this situation here. Market analysts have long considered the closure of the Strait of Hormuz—a closure Iran enforced in reaction to the U.S. and Israel’s illegal war—a remote worst-case scenario. One-third of the world’s traded crude oil flows through that narrow passageway, along with a fifth of traded liquefied natural gas, or LNG; one-third of fertilizers; two-fifths of helium; and nearly one-half of sulfur. The Gulf’s abundant supplies of oil and gas are used to create feedstocks for a range of refined products that are critical to everything from food production to data centers. Upward of 15 million barrels of crude oil are being kept out of export markets each day the Strait of Hormuz remains closed, bringing the total so far to roughly 345 million barrels.

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