Is Trump an Anti-Oil Zealot?

September 27, 2018

Anas Alhajji

Given the number of times that President Trump has been repeating the “trade wars” ideas and the attacks on the oil industry, including OPEC, over the years (almost the same sentences over and over), gives the impression that he is obsessed with these ideas.  If that is the case, then logic and evidence do not matter, even if he is lectured by Nobel laureates in economics all day long.  The recent attacks on OPEC are not related to the mid-term elections, but part of an old long-held conviction. His support of coal and natural gas is evident by his statements.  In addition, he did not criticize natural gas prices when they increased by more than four fold in 2005-2008.  The best way for the oil industry to judge President Trump is not by comparing him to President Obama or Secretary Clinton, but to compare him to any other Republican president in his place.

 

Facts

• Fact: The US oil industry supported the election of President Trump
• Fact: Trump stated in a CNBC interview in 2008: “I would also tax the oil companies into oblivion… I would tax the hell out of the oil companies”   Here is a link to the transcript of the interview:

https://www.cnbc.com/id/24648866

If you think Trump’s federal budget benefited oil companies greatly, think again.  It was a mixed bag at best:

https://www.bloomberg.com/news/articles/2018-01-08/big-oil-finds-hurdles-buried-in-trump-s-america-first-tax-plan

And here is a developing story: imposing additional taxes on gasoline will also hurt the oil industry:

https://www.cnbc.com/2018/02/15/trumps-gas-tax-would-wipe-out-60-percent-of-tax-cut-benefit.html

Note: no one can deny that Trump wants a stronger oil and gas industry at home.  But we cannot compare him to Obama, since any other president would be friendlier to the oil industry than Obama. At the same time, the domestic oil industry needs a minimum price that is higher than what the oil price that Trump wants.

• Fact: Trump stated he wants oil prices between $40 and $50 per barrel.  If that does not hurt US oil producers and US oil companies, what would?
• Fact: Most OPEC members welcomed the election of President Trump. Saudi Arabia was his first destination after his inauguration.
• Fact: The US is now the largest oil producer in the world. Higher oil prices between 2010 and 2014 enabled US tight oil producers to be a formidable force in the global oil market.  The rise of oil prices was caused by the Arab Spring and sanctions on Iran.  Several OPEC members increased production then.
• Fact: US oil producers need oil prices to remain relatively high to keep growth in tight oil production to meet production forecasts by the EIA and the IEA and avoid a major energy crisis in the future.
• Fact: Lower crude oil prices may not translate into lower gasoline prices at the pump

 

Then, how do we explain President Trump’s attacks on OPEC, and his allies in particular?  Is it an election-related?

• Fact: Trump has been attacking OPEC and the oil industry for a long time, even when he was signing real estate deals with the oil sheikhs in the Middle East.
• Fact: Trump has been talking about “sharing” the oil revenues of Iraq and the Gulf countries for a long time.
• Fact: The trade wars that Trump launched were old ideas that he has been repeating for decades. He has been also bashing OPEC in general and the oil producers in the Gulf region for a long time and at different oil price levels.  The attacks on OPEC and individual oil producers over the years fit well with the trade wars and “getting a better deal” ideas.

 

Contradictions

• Energy dominance requires a strong oil industry. By asking OPEC to lower prices, Trump is hurting the US oil industry.  In his 2011 book, he wants oil prices to be between $40 and $50.  We all know that US oil production will not grow at that price, despite the fact that Trump supports additional drilling activities, even on federal land.
• Manipulating prices takes many forms. He is accusing OPEC of manipulating prices, while he is doing exactly that by making such public statements as the President of the largest economy in the world, the largest oil consumer, and the leader in charge of the strongest army on earth.
• If he wants oil-producing countries to buy US weapons and other products, they need higher oil revenues. If they do not get the revenues, they will not buy.
• Lowering oil prices now would lower investment in exploration and production. This will backfire on President Trump if he wants to run for reelection in 2020: by then, we will not have enough supply and prices will increase without the ability to control them.  It looks as if he is favoring short run gains over long run gains.  But it does not matter. It is a convection!

 

 

Is it about the elections in November 2018? 

Cannot be.

• Gasoline prices are not that high at a time when unemployment is low and incomes are rising.
• His supporters in the US oil industry want higher oil prices. At current prices between $70 and $80, the tight oil industry started generating free cash flow.
• Unlike the past, growth in US oil production and US economic growth are linked. Current oil prices between $70 and $80 have a net positive effect on US economic growth. In other words, the conventional wisdom that such prices will hurt US economic growth no longer holds in the shale era.

 

I am convinced, from reviewing his statements over the years, that his recent attacks on OPEC were not related to prices or the elections.

Trump would continue to attack OPEC after the elections and even if gasoline prices drop.  His tweets were opportunistic, but the issue remains the same issues that he has been talking about for several years.  In some of his old statements, he sounded envious when talking about the wealth of some leaders in the Gulf States.

Trump is an anti-oil/anti-OPEC zealot and he has been that way for a long time.  While his statements indicate that he wants to see oil prices between $50 and $60 when oil prices were high, he did advocate prices between $20 and $30 for a while.  In his 2011 book, he states “With proper leadership, we can get the price down to $40-$50 a barrel, if not the $20 that I have previously suggested”!   it seems if prices drop to $60, he wants $50, and if they were $50, he prefers $40 and he does not mind $20!

In short, a review of his statements tells us that his attacks on OPEC are not election-related. The range of prices he advocated indicates that he is not happy with almost any oil price, and whatever prices he talked about makes US producers unhappy.

 

Partial Historical Record

• In July 2008, during an interview with CNBC, Trump blamed the recession on oil- producing countries and welcomed the decline in oil prices. “They have so much oil they don’t know what to do with it. It’s ridiculous what’s going on with OPEC and all of that.”   Here is something relevant to today’s Trump OPEC tweets: In that interview, he stated that oil prices should be no more than $50-60/b and perhaps less.  Link to story: https://www.newsmax.com/finance/StreetTalk/oil/2008/07/29/id/324730/

 

• On September 29, 2008, during a FOX News interview with NEIL CAVUTO, Trump made the following statements: “So these guys, and it’s just a few people, it’s OPEC, these guys are draining the lifeblood out of our economy and out of other economies, too, making more money than anyone has ever made before. Every time — and you watch it, Neil. If you announce today that they have met and they have worked it out, and that $700 billion is going to be brought back into the economy, it is going to be wonderful, wonderful, guess what’s going to happen?” Here is a link to the full transcript: http://www.foxnews.com/transcript/2008/09/30/donald-trump-sees-silver-lining-failure-bailout-bill.html

 

• On June 30, 2009, during an interview with Greta Van Susteren on Fox News, Trump attacked OPEC. To understand the recent tweets, notice the reference to $70/b oil price: “OPEC is raising oil prices and absolutely draining and sucking the blood out of the country. There’s no reason for $70 oil. That’s very expensive. And OPEC is doing its thing. And as usual, nobody does anything about OPEC. You know, they like to blame it on speculators. Speculators are peanuts by compared to the power that OPEC has. So OPEC is draining the life blood out of this country, number one.”   If $70/b is too high, what oil prices Trump would like to see?  The answer is $20-$30. He mentioned this range the same interview:  “And number two, we’re going to see what happens, and you know, over a period of time, but if oil prices continue at this level — I’ve always been told by the smartest people if oil is over $20 to $30 a barrel, you’ve got yourself a big problem. And again, nobody brings it up. Interest rates, hopefully, will stay low. But the biggest problem is banks are not loaning money. So between OPEC and the banks, we’ve got ourselves problem. The banks are not loaning money. No matter who you are, no matter how rich you are, if you want to go and borrow money to create a big job or do some great, noble thing where lots of people go to work, you cannot go to a bank to borrow money.”  Here is a striking question in 2009:

VAN SUSTEREN: So what — if you were president, what would you do about the fact that OPEC — the price of oil is shooting up, and the second thing is that the banks aren’t losing (SIC) money? If it were President Trump today, what would you do?

Trump: And you have to do something about OPEC. OPEC has to be destroyed in the sense — in an economic sense. You have to do something about OPEC. They can’t — it really is an illegal situation that they’re doing from any standpoint in most countries. But they’re doing it and they laugh. The truth is, I know people involved with OPEC. They laugh at the stupidity of our country. They laugh at us. They laugh at the stupidity of our politicians in this country. They do whatever they want to do.  There’s oil all over the world in tankers. They can’t even bring them in because there’s so much oil. And OPEC has $70-a-barrel oil. They are laughing at the stupidity of our leaders!

The full transcript is in this link: http://www.foxnews.com/story/2009/06/30/trump-world-view.html

 

Here is the actual interview: https://www.youtube.com/watch?v=k4iSKX3oPDA

 

• July, 2009. Here is Trump criticizing OPEC for agreeing to cut production: https://www.huffingtonpost.com/2009/07/28/donald-trump-warns-opec-w_n_246645.html

 

• On April 9, 2010, in an interview with Fox News’ Neil Cavuto, Trump outlines a very important point that is relevant to today’s event: We cannot do to oil-producing countries what we can do to China. Why? Because we do not need Chinese products, but we need the oil (of course that was before the shale oil revolution? The point remains valid when you look at crude quality).

“The thing is, we don’t need Chinese products. OK? We need oil, unfortunately, because there’s so many alternatives now that pretty much soon maybe that can change, if we’re smart. But we don’t need Chinese products.”

Here is the link to the transcript: http://www.foxnews.com/story/2010/04/09/trump-on-rising-debt-owned-by-chinese.html

 

• Early 2011, Here is Trump talking about OPEC and some Gulf States, a few years even before he become a presidential candidate: https://www.youtube.com/watch?v=QLmKBOeYq-U

 

• In his book, “Time to Get Tough” published in 2011, he dedicates the first issue to OPEC! Yes, OPEC! See copies of a couple of pages below.  One side comment on the cost of oil production figures he cited in his book, they are WRONG on several fronts.  All his views on OPEC are based on these cost figures.  Since they are wrong, and in reality they are way higher, the whole theory about OPEC countries making a lot of money collapses.  In addition, when talking about wealth transfer, we have to set a date.  The wealth transfer looks way different if we start counting from 1911, or from the 1930s, vs recent years. However, given the cost logic, probably he should look at Apple!