In mid-May, US crude oil futures topped $72 a barrel over concerns related to Trump’s destabilizing the Middle East by breaking the Iran treaty, re-implementing a sanctions regime, and promoting the ongoing blockade of Qatar. Prices were also driven up because Trump stiffened sanctions on Venezuela. Since then, oil prices have eased almost 10 percent over reports that Qatar was mending bridges with Trump by giving Jared Kushner a $1.8 billion lifeline, that Kushner’s pal Saudi Crown Prince Mohammed bin Salman was going to do Trump a solid by opening the taps a little wider, and that Vladimir Putin was going to back that play by ignoring limits on Russian oil production.
This is actually how the world works now.
But the drop to around $66 a barrel makes Trump’s morning tweet a little … odd.
Oil prices are too high, OPEC is at it again. Not good!
— Donald J. Trump (@realDonaldTrump) June 13, 2018
And, because there is always a tweet from the past …
Gas prices are at crazy levels–fire Obama!
— Donald J. Trump (@realDonaldTrump) October 22, 2012
The average national gas price in October 2012 was $3.69. It’s currently $2.96. So Trump can maybe lay some claim to not being at the level he set for presidential firing. However, the price is well above the $2.37 that Trump inherited when he moved into the White House, and it’s up by almost a dollar from where it was of November 2016.
Overall, oil prices have increased more than 40 percent in the last year. That boost in oil prices has been an enormous boon to oil-producing companies, and particularly to Russia, whose budget was deep in the red with few options for borrowing before oil made a steep increase.
One other factor that’s added to a tightening of the oil market is the failure of many US shale oil producers. Producing oil from shale became attractive only when oil had spent a prolonged period above $85—which it did for a period from 2010 to the start of 2014—but with oil pricing delicately poised on the knife edge of supply and demand, where even a small change in either can result in wild swings in prices, that extra shale-based oil came on the market just in time to contribute to pushing prices down to a level not seen in over five years. West Texas crude went from $106 a barrel to $32 a barrel in less than 18 months.
The oil shale producers who pitched in when prices were high, suddenly found themselves losing, and losing big, on every barrel they sold. They folded about as fast as they appeared. And that bust in oil shale, though only a small amount of US production, helped drive prices right back up again.
It’s the same kind of volatility that for years kept energy companies from basing their primary electrical production on natural gas. Even though gas was often cheaper than coal and required a much smaller initial investment, its sensitivity to supply and demand meant that prices often yo-yo’d by 100 percent in a year. Utilities tended to restrict their gas use to “peaking” plants that supplemented baseline coal and nuclear production. It was only after fracking not only pushed supply way up, and prices way down, over an extended period that utilities began to make the bet on gas as their primary source of power. And many utilities are now supplementing the gas plants with solar and wind in the same way that they used to supplement coal with gas—testing the water to be sure that renewables aren’t just cheaper for the moment, but cheaper in the long haul.
For oil shale, the price drop that put producers out of business makes the business a hard-sell for investors. Unless there’s a major increase in demand, or a drop in supply, that pushes oil back to the $100 range for an extended period, redevelopment of those sites is unlikely. Which makes any claims about the need to permit more areas for oil shale production immediately invalid.