President Trump’s tweet on February 25 urging OPEC to ‘relax’ and to take it ‘easy’ with their cuts, and that a ‘fragile’ global economy can’t tolerate a higher oil price, did have an immediate price impact, with the Brent price declining by 4 per cent on the day, from nearly $67/b down to $64/b (see Figure 1). But the ‘Trump tweet’ impact faded fairly quickly with oil prices gaining again towards the end of the same week. A clear signal from the Saudi energy minister Mr. Khalid Al-Falih in which he confirmed that OPEC and its partners would continue with their output cuts with the objective ofachieving a more balanced market was a key factor behind the fast recovery.
As argued in Fattouh and Economou (2019)1, extrapolating Saudi Arabia’s behavior in 2018 into 2019 is risky and the assumption that Saudi policy will reverse its current strategy under Trump’s pressure does not reflect the shift in Saudi thinking and the current uncertainties and weaknesses engulfing the oil market. This Energy Comment sheds some light on the current market uncertainties pertaining to the drivers and prospects of global demand growth in 2019, the clearing of the stocks overhang and the dilemma that OPEC and its partners currently face.
Figure 1: Daily Brent price and Trump’s tweets, Jan 18 – Mar 19