Oil prices fell by about 3 percent on April 26 as President Donald Trump called on the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) to increase production.
“Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement,” Trump said in an April 26 tweet.
Brent crude futures, the leading oil price index, fell $2.20 to $72.15 a barrel, the largest one-day drop since Feb. 25.
Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement. The California tax on gasoline is causing big problems on pricing for that state. Speak to your Governor about reducing. Economic numbers, 3.2% GDP for what is often worst quarter, looking good!
— Donald J. Trump (@realDonaldTrump) April 26, 2019
Oil prices have rallied about 40 percent higher this year after OPEC and several allies cut supply by 1.2 million barrels per day, and as sanctions on Venezuela and Iran have reduced output. Prices were still up more than 30 percent this year after the April 26 losses.
On April 25, Brent rose above $75 a barrel for the first time this year after Germany, Poland, and Slovakia suspended imports of Russian crude via a major pipeline due to contamination. Russia, which expects to resume pipeline supply on April 29, said it believes the oil could have been deliberately contaminated.
The Trump Effect
Since taking office, Trump repeatedly has exhorted the OPEC cartel to lower prices. His comments tend to have a temporary effect on the market, and some traders noted that the recent move made the market ripe for profit-taking.
“I think the market should be more skeptical because I don’t think OPEC is going to jump every time Trump calls,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “Now, if we actually see evidence that OPEC is raising production, or says they’ll do it right away, that could change things.”
U.S. oil drillers this week cut the most rigs since the week of Jan. 18, down 20 to a total of 805, as independent producers follow through on plans to cut spending on new drilling and completions.
The U.S. rig count, an early indicator of future output, has fallen below year-ago levels, when 825 rigs were active.
Traders also said the selloff was in part due to rumors that Washington could grant China an exemption to the Iran oil embargo allowing it to keep buying Iran’s oil, which would increase the available worldwide supply. Washington said April 22 that it would end all exemptions for sanctions against Iran.
“The market had gotten all bulled up on Iran output, or exports going to zero or close to it,” said John Kilduff, a partner at Again Capital LLC in New York.
Two Trump administration officials pushed back on the rumors on April 26, saying that neither a wind-down period nor a short-term waiver on China’s oil purchases from Iran is being contemplated after Washington told Iran’s customers on April 22 to halt the purchases by May 1 or face sanctions.
The administration has been very clear to China, Iran’s top oil consumer, about not granting additional waivers to the sanctions it granted last November, one of the senior administration officials said.
“They’ve known about it, so to my knowledge that’s not being contemplated,” said the official, adding that ultimately questions about a wind-down period would be for the State Department. The State Department didn’t immediately respond to a request for comment.
Reuters contributed to this report.