If there’s one thing a politician in power hates to see, it’s oil prices rising ahead of an election. This is why we have seen prior administrations attempt to manipulate oil prices leading up to elections. For example, previous presidents have released oil from the Strategic Petroleum Reserve in an attempt to moderate oil prices prior to elections.
This is a situation President Trump has faced over the past year. In the summer of 2017, the price of a barrel of West Texas Intermediate (WTI) crude oil was still in the mid-$40s. This summer, it reached the mid-$70s, a one-year rise of more than 50%.
One factor behind this rise has been the hard line the Trump Administration has taken on Iran. As recently as April of this year, Iran reportedly exported more than 2.6 million barrels of crude oil per day. Iran is one of the world’s Top 10 crude oil exports, accounting for nearly 5% of global crude oil exports in 2017.
The Trump Administration has targeted Iran’s oil industry with sanctions, warning countries against continued purchases of Iranian crude oil. But this strategy is bound to cause an increase in oil prices, unless the oil market has plenty of spare production capacity.
Saudi Arabia has sought to reassure the world’s oil markets that it could make up for the loss of Iran’s oil exports, but many analysts are skeptical that they can easily do so. This is especially true considering the ongoing implosion of Venezuela’s oil industry, and the resulting decline in that country’s oil exports.
Hence, the Trump Administration is in the difficult position of wanting to tighten the screws on Iran, while at the same time avoiding an oil price spike. So, as the November 5th date loomed for countries to eliminate oil imports from Iran, the Trump Administration blinked.
Last week the Trump Administration announced that it would grant waivers to eight countries to allow them to keep importing Iranian crude oil for now. The waivers allow these countries another 180 days to phase out their purchases of Iranian crude oil. In my opinion, this was a move aimed at avoiding an oil price surge just prior to this week’s elections.
It is worth noting that even though oil prices are about 10% higher than they were to start the year, the price of WTI has fallen by about 10% over the past month. This is primarily due to crude oil inventories in the U.S. that have risen for six consecutive weeks.
That rise in crude inventories can be explained in part by the ongoing trade war with China. Following the crude oil export ban repeal in 2015, China’s exports of crude oil from the U.S. soared. Through July of this year, China imported more than half a million barrels of day of crude oil from the U.S.
But China recently announced that in light of the trade war with the U.S., it had suspended crude oil imports from the U.S. Presumably, China hasn’t reduced its oil consumption by half a million barrels per day, so it has had to rely on other countries – including Iran – to fill that void. But the loss of that export market has helped push crude oil inventories higher, and U.S. crude oil prices lower in response.
So, at least one Trump Administration policy is helping bring oil prices down, even if it is merely a consequence of a trade spat.