Saudi Arabia, the world’s largest oil exporter, signaled on Friday that its 18-month-old quest to drive up crude prices and drain global inventories might be coming to an end.
And according to the top official in the Organization of the Petroleum Exporting Countries, one reason for the change in outlook was an angry tweet by President Donald Trump.
Crude oil prices tumbled $2.83, or 4 percent, to $67.88 a barrel Friday on the New York Mercantile Exchange after Saudi Arabia and Russia appeared to near an agreement to boost production.
The drop erased a three-week rally that was based in large part on geopolitical worries about unrest in Venezuela and U.S. calls to curtail purchases of Iranian oil.
On Friday after meeting his Russian counterpart in St. Petersburg, Saudi energy minister Khalid al-Falih acknowledged the “anxiety” of oil-consuming nations and said OPEC and its allies, led by Russia, were “likely” to increase output in the second half of the year. The next OPEC meeting is June 22.
In a tweet, Al-Falih said that in recent talks with Nur Bekri, vice chairman of China’s National Development Reform Commission, “I reiterated Saudi’s commitment, in collaboration with other producers, to guarantee availability of sufficient oil supply to compensate for potential loss & to meet rising demand.”
OPEC and Russia have been keeping output below capacity since November 2016. During that time, prices have more than doubled.
“It was a pretty successful effort to rebalance the market,” said Gregory Gause, professor of international affairs at Texas A&M University.
Recently, prices have surged to four-year highs thanks to a variety of factors.
Unrest in Venezuela has trimmed the OPEC co-founder’s output and could drive it down further in coming weeks. Thanks largely to Venezuela’s falling production, compliance with OPEC quotas exceeded targets, unusual for a group whose members often cheat on one another.
The Trump decision to renew U.S. sanctions on Iran could cut as much as half a million barrels a day from Iranian oil exports. The administration said it has appealed to oil exporters to make up for lost production to keep prices steady.
In addition, in March, commercial stockpiles of oil in the Organization of Economic Cooperation and Development countries fell 1 million barrels below the five-year average. Usually, inventories rise at that time of the year.
OPEC Secretary General Mohammad Barkindo said Friday that talks about easing production cuts were prompted by a sharply critical tweet by Trump on April 20. In it, Trump said: “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!”
“We pride ourselves as friends of the United States,” Barkindo told a panel with Saudi and Russian energy ministers in St. Petersburg at Russia’s main economic forum.
His remark came one day after Democratic lawmakers blamed the president for boosting gasoline prices just before the Memorial Day start to the summer driving season.
“Secretary General Barkindo’s tweet gives President Trump bragging rights for pushing OPEC to open the taps,” said Robert McNally, former National Security Council adviser to President George W. Bush and president of the Rapidan Group, a consulting firm. “The Democrats demanded Trump weigh in with OPEC to reverse crude price increases. He did.”
Tom Kloza, global head of energy analysis for Oil Price Information Services, said his outlook for gasoline prices has already changed. “What had been an arduous ascent for gas prices is now on hold,” he said. “The OPEC and Russian rhetoric indicates they may put additional oil on the market to help meet demand.”
But McNally and other analysts cautioned that the sharp drop in crude oil prices Friday could be short-lived and that the November midterm election was still far away. He noted that the glut in commercial inventories was “almost gone” and that the buffer of spare production was still relatively small, an ominous situation when geopolitical risks remain high.