President Donald Trump blames OPEC for oil prices that he says are too high, and no doubt many Americans feel the same way.
But it’s more complicated than that.
Crude has more than doubled since bottoming out below $30 a barrel in early 2016, causing U.S. motorists to face the highest gasoline prices since late 2014.
On Wednesday, the national average for a gallon of regular stood at $2.91, up 25 percent from a year ago, according to the AAA auto club.
“Oil prices are too high, OPEC is at it again. Not good!” Trump tweeted Wednesday morning.
OPEC is the Organization of Petroleum Exporting Countries. Members of the cartel, led by Saudi Arabia, and other big producers including Russia have played a role in reversing the plunge in crude prices that started in 2014. They have shown discipline in limiting production since the start of last year, helping push up the benchmark price of international crude.
Prices, however, were already rising on growing demand and expectations that a sharp pullback in new investment by oil companies would reduce the oil supply.
“Over time it would have happened anyway because of the cutbacks in (drilling) investment, but definitely OPEC’s cut in production helped speed the reduction of the oil glut,” said Phil Flynn, an oil analyst for The Price Futures Group.
Some estimates put the post-crash reduction in investment by major oil companies such as Exxon Mobil, Chevron and BP at more than $1 trillion. Flynn compared that to eliminating the fourth-largest oil producer in the world.
Meanwhile, output from Venezuela — a major oil exporter to the U.S. — has plunged as the country goes through a political and economic crisis. Most analysts expect production there to go even lower.
While Venezuela is a member of OPEC, “the disaster in Venezuela, which has created a hole in the market, is not the fault of OPEC,” said Daniel Yergin, the vice chairman of research firm IHS Markit and author of several books on the energy industry.
Then there is Iran, OPEC’s third-biggest producer. The country boosted production after the U.S. lifted sanctions related to Iran’s nuclear program in 2016, but analysts expect output to fall when the Trump administration’s decision to withdraw from the deal takes full effect later this year.
U.S. companies have filled some of the gap created by Venezuela, OPEC and non-OPEC producers including Russia. Using drilling advances such as fracking, operators in Texas and North Dakota have pushed U.S. production higher.
U.S. oil production has more than doubled in the past decade, including a 19 percent increase since OPEC’s limits took effect in January 2017, according to the U.S. Energy Information Administration.
Oil prices have eased slightly in recent weeks. Saudi Arabia has already started pumping more crude. The kingdom reported that it increased production in May to about 10 million barrels a day.
Trump’s tweet — similar to one he wrote in April, blaming OPEC for “artificially Very High” oil prices — came a week before a much-anticipated OPEC meeting in Vienna and may have been designed to influence the discussion.
“The president’s tweets are really telling the other oil-producing countries to step up your production to make up for the coming sharp declines that are expected in Iranian oil exports,” Yergin said.
OPEC is under scrutiny in Congress, too. The House Judiciary Committee approved a bill Wednesday to subject OPEC to U.S. antitrust law by removing state immunity shields. The committee chairman, Rep. Bob Goodlatte, R-Va., said shielding a cartel like OPEC “makes a mockery of U.S. antitrust law, threatens the American economy and has the potential to harm our national security.” The measure now goes to the full House.
Jason Bordoff, a Columbia University professor and former energy adviser to President Barack Obama, said politicians always fret when gasoline prices rise before a big election.
“Oil prices have come up a lot, but we’re not near $4 gasoline,” Bordoff said. “Adjusted for inflation, these prices are not out of line with where we’ve seen oil prices for the last decade or two.”
Democrats are trying to blame Trump for higher gasoline prices, sensing the issue will resonate with voters in the November midterm elections that will determine control of the House and Senate.
Charles Schumer, the leader of Senate Democrats, recently linked $3-plus gasoline to Trump’s decision to revive sanctions on Iran. Schumer spoke as he stood in front of the price sign — regular for $3.09 — at an Exxon station on Capitol Hill.