I expect the market is going to be entering a jittery period as oil prices are set to swoon over the next few days. This is, according to this CNN/Business report, due to an oil market share war, implemented by dropping oil prices charged to customers, between Saudi Arabia and Russia:
Why are oil prices crashing?
Saudi Arabia, the world’s top exporter, launched a price war over the weekend. The move followed the implosion of an alliance between the OPEC cartel, led by Saudi Arabia, and Russia.
The kingdom and Russia came together to form the so-called OPEC+ alliance in 2016 after oil prices plunged to $30 a barrel. Since then, the two leading exporters have orchestrated supply cuts of 2.1 million barrels per day. Saudi Arabia wanted to increase that number to 3.6 million barrels through 2020 to take account of weaker consumption.
But Russian President Vladimir Putin, worried about ceding too much ground to American oil producers, refused to go along with the plan and his energy minister, Alexander Novak on Friday signaled a fierce battle to come for market share when he said countries could produce as much as they please from April 1.
Why did Saudi launch a price war?
Simmering differences over how best to manage global oil markets spilled into the open at a meeting between OPEC and Russia in Vienna on Friday. After Russia said it was ditching the alliance, Saudi Arabia warned it would live to regret the decision, sources who attended the meeting told CNN Business.
I am looking forward to seeing how President Trump reacts to this contretemps. Here are the relevant factors:
- Trump has been close to President Putin of Russia.
- Trump has been close to the kingdom of Saudi Arabia, and its Crown Prince Mohammad bin Salman (commonly known as MBS), who may be regarded as the de facto King of Saudi Arabia.
- The report mentions the United States is now the #1 oil producer in the world, an accession that came under President Obama’s watch. Trump doesn’t much care for Obama.
- The stock market, which plunged on the oil price news and the apparent worsening of COVID-19 pandemic, has been Trump’s favorite metric for the success of his Administration (never mind that it’s not an appropriate metric; whatever club comes to hand for President Trump is the rule of the day for our Amateur in Chief). He’s suddenly deprived of this one, although he can always say “not my fault!”
But we can dig a little deeper here, can’t we? I mentioned above that economic health isn’t the province of the Executive, and here we see why it’s foolish for any President to point at the market, or unemployment, or any economic figure and take credit for it – because these measurements are not measuring things that he or she can control!
Oh, sure, we can talk about regulations and sputter about the burden they place on the private sector, but the truth of the matter is that regulation is, at best, a grey area, a tug of war between Congress and the Executive, and anytime Congress wishes to do so, it can implement or erase regulations – if it can get enough members to vote for it.
The Executive is responsible for implementing the laws passed by Congress. The Executive is not responsible for the economy.
But our current President has hugged markets to his breast, and dry-humped them to stroke his ego. What will he be doing as the markets plunge again and again? Will he pick MBS or Putin as his soul mate? Will he proclaim USA Great Again because we produce a lot of oil?
Yep, President Amateur has some challenging days ahead of him.
