April 4, 2020 /

Trump Is Not Prepared For A Pandemic, Let Alone An Oil War

Don’t let Trump tweets fool you. The oil price war is just starting.

Early last month when Russia and Saudi Arabi decided to keep producing oil at its current level, oil prices started a free fall. While people instantly think this involves two far-off foreign entities, it also hits here at home.

Before the latest drive to the bottom sparked by OPEC, things were looking really grim for the oil industry in the United States. The Drilling Productivity Report, issued by the Department of Energy painted a bleak future, with things like shale oil crashing next year.

The crash of the shale oil market isn’t the fault of OPEC. Instead, what we’re seeing is an aging technology that is wearing out. Shale oil production is expensive. Usually oil must be $40-$45 a barrel to break even. Since the start of the boom there has been no technological advances to drive down the overhead, and investors have noticed and are now turning on the commodity. Add to that the fact that fewer areas are available to extract oil, and you can see how the end is near for the field.

Fast forward to this week.

As seems the norm now, it all started with a tweet.

This came less than 24 hours after Trump was bragging from the podium that gas prices would soon be “99 cents per gallon” and how great that is for everyone. So if you are confused by what he wants, you are not alone.

Trump loves to think he’s in charge, but as every other past President can tell you, when it comes to OPEC we are simply observers. The real power lies between Russia and Saudi Arabia. Perhaps this is summed up best by this article:

As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end. Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality. Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived

Now OPEC is getting ready to meet again, but there’s a catch. It appears they are using Trump’s ignorance against him and us. The next meeting is called OPEC + friends, and the United States is expected to be one of those “friends.” And well:

The second major threat at the Monday meeting is that Saudi Arabia not appear to be at all convinced that it needs to change its current tactics. Its targeted goals of regaining market share, forcing Russia to come to the table and bringing non-OPEC producers such as U.S. shale to their knees are working well. Several Saudi officials have stated that they are willing to discuss a new agreement but only under the conditions that potential production cuts will be on the shoulders of all, not only Saudi Arabia, Russia, and UAE. In this light – Trump’s demand for a more than 10 million bpd cut from Russia and Saudi Arabia is unrealistic, to say the least.

Donald Trump is not equipped for what is coming his way. His crony filled administration is too cowardly to inform him on facts, lest they become the target of a Twitter tirade and the U.S. holds no cards worth playing right now.

The real problem here is that once America opens up and gets back to work, the oil-driven part of the economy will still be in turmoil. That leads to a longer recovery and extended periods of uncertainty for our nation as a whole.

If only our President would have been proactive on getting us off oil all together, but instead he insists that’s the only thing we need. Now we’re further indebted to OPEC and they are playing it for all they can.

How is that for MAGA?

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