How Will OPEC+ Deal With Trump?

The announcement from the Joint Ministerial Monitoring Committee (JMMC) about OPEC+ producers commitment to production plans while market assessment is continued upon the return of the voluntary output cuts that could be halted or reversed depending on market conditions. JMMC’s statement came on the back of the 55^th JMMC meeting that was held on August 1, 2024, the outcome of OPEC’s JMMC meeting wasn’t related at all to what has been stated by President Trump three days earlier on July 29, 2024:

“OPEC nations are going all out to drive down oil prices in the hope that Kamala Harris will win. Then they will really reap the rewards!”

OPEC’s statute stipulates that the principal aim of OPEC is to harmonise the petroleum policies of its Member Countries as part of its efforts to safeguard their interests. It further states that members of the Organization shall work together to ensure stable oil prices, secure fair returns to producing countries and investors in the oil industry, and provide a steady petroleum supply to consumers. That being stated, OPEC statute isn’t and never been linked, related or even driven by any political agendas or motives regardless of any geopolitical tensions or US presidential campaigns .

Taking the Credit of Lowering Oil Prices

It is widely believed that Trump’s presidency may have a downward impact on oil prices due to encouraging policies for oil and gas, and pressure on OPEC+ producers to pump more crude oil barrels into the market. According to his aforementioned statement, Trump might want to take the credit of lower oil prices assuming that returning OPEC+ barrels to the market gradually from October 2024 till the end of 2025 will put downward pressure on oil prices. OPEC+ still holds around 5.5 million barrels per day (bpd), around 3.5 million bpd until the end of 2025 and around 2 million bpd until the end of September 2024, which is the second largest production cut after COVID-19 since 2008.

Supply/Demand Balance isn’t Driven by any Political Pressure

Market supply/demand balance isn’t driven by any political pressure and does not depend on social media influences, and if there is a need to change OPEC’s output strategy to balance the market and stabilize the global economy, it will happen in due course upon market fundamentals and market forces, and if there may not be room to receive barrels of production cuts until the market vision becomes clear and able to absorb those barrels. The elasticity between lowering production and lowering oil prices became irrelevant after the pandemic changed market dynamics unlike before. Hence, lowering energy prices might not lead to an overall economic improvement as some might believe.

OPEC+ Output Strategy isn’t Influenced by Social Media Squabbles

If Trump wins the election in November 2024, Trump’s tweets (posts) will not impact OPEC+ output strategy but might impact the global market tranquillity.

We recall that Trump’s tweets asking OPEC to increase production to lower prices began in 2018 whenever the price of Brent crude rose above $75/bbl. Trump’s tweets continued throughout 2018, even when Brent crude price reached a four-year high of $86/bbl in October 2018, before he granted surprise exemptions from sanctions to the largest importers of Iranian oil. Then prices fell to below $55/bbl at the end of 2018, and continued to move in a narrow range between $55-$65/bbl until early 2019.

In 2019, Trump sent signal to OPEC that he won’t tolerate oil prices above $70/bbl when he tweeted to OPEC – those prices are rising and that the global economy is “fragile” and cannot bear them to rise, while price levels were $10/bbl lower than they were when he tweeted to OPEC in 2018.

At the height of the pandemic, after the biggest oil demand shock in history, Trump praised the role of Saudi Arabia and Russia after the largest production cut in history for their role in stabilizing the energy market during the pandemic.

Does OPEC need to change its output strategy for Trump?

Trump promised to strengthen the independence of the energy sector in the US, and this translates into support for the local oil and gas industry, which will lead to an increase in its production, especially since it is outside OPEC+ producers. Oil prices and its derivatives during the Trump era were lower than their current time on average.

Some might think that if OPEC+ does not act proactively before the Republican Party comes to power in the US, for example by studying or perhaps reconsidering the return of production cuts from October 2024 until the end of 2025 because this is an important card to play later. Current oil price levels around $80/bbl are considered high prices for Trump.

The main shift to the global oil market under Trump’s presidency is the pressure on Iran, although this effect is limited. If Trump again adopts the “maximum pressure” on Tehran, Iranian oil exports may decline by almost one million bpd only, which will have minimal impact on oil price movement.

The American presidential rallies contain clear messages about the candidate’s intention to deal with the energy industry and its markets in the next four years. The return of the Republican Party means moving away from the demonization of oil with Trump’s slogan Drill, Baby, Drill, which will flourish the oil and gas industry in the US, in addition to maintaining the US return as the largest oil and gas producer, perhaps exiting the Paris Agreement on climate change again, and restoring the glory of the American auto industry, which will support petroleum refined products demand outlook while on the other hand imposing taxes on the Chinese electric cars.

In summary, OPEC+ will not be influenced by Trump’s tweets (posts) or any other political pressure. The market supply/demand balance will be determined by market fundamentals and forces. If Trump wins the election, his tweets (posts) may impact global market tranquillity. However, OPEC+ will continue to assess market conditions and adjust oil production according to market needs. Trump’s presidency may lead to lower oil prices, but this may not necessarily improve the overall economy. OPEC+ does not need to change its output strategy for Trump, but Trump’s policies may support the US oil industry. The return of the Republican Party could lead to an increase in US oil production and a potential decline in Iranian exports. Trump’s presidency may also impact climate change policies.