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Trump Declares Energy Interdependence on July Fourth


It is 242 years and a day since the U.S. took that first, fateful step onto the world stage as a sovereign actor. It is a day since the country’s 45th president railed against OPEC for not doing more to push down oil prices (via Twitter). And it is mere hours since Iran’s OPEC governor trolled President Donald Trump, telling him his own tweets are the problem.

There is a certain irony in the president’s latest ding against OPEC landing on the Fourth of July; demonstrating, as it did, that in certain respects, America’s independence (let alone dominance) faces some constraints. Trump is correct that OPEC isn’t doing more to cap gasoline prices. However, he is incorrect in calling it a “Monopoly” and rather misses the point that a big reason OPEC isn’t doing more is that many of its members cannot.

One of those countries is, of course, Iran, which may soon have a large amount of its own oil exports taken off the market as a result of Trump’s antipathy to the nuclear deal signed by his predecessor. In that sense, Iran’s OPEC governor is right: Oil is higher partly because of Trump’s own policy choices.

But he is mistaken if he thinks any words of his will keep the president’s fingers away from that touchscreen. Because neither he nor the rest of OPEC are actually who Trump was tweeting at. The real audience spent Wednesday mostly eating grilled meat and watching fireworks.

The U.S. gasoline market is the single biggest pool of oil demand on the planet, accounting for almost one in every 10 barrels consumed. And it is not looking well right now.

Figures released last week by the Energy Information Administration show gasoline demand in April fell by 0.7 percent, year over year. Looked at on a trailing 12-month basis, it’s clear the boost to demand provided by low pump prices in 2015 and 2016 is over:

Off The Gas

Low pump prices resulting from the oil crash spurred big gains in gasoline demand through the end of 2016, but it has since leveled off

Source: Energy Information Administration

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On average, pump prices are up about 46 cents a gallon, or almost 20 percent, since Trump’s inauguration. Given continuing economic growth and falling unemployment in that time, it seems likely those higher prices are deterring demand. JBC Energy, a research firm based in Vienna, noted in a report published on Thursday there has been a particularly sharp slowdown in demand for higher-priced premium grades after a period of robust growth in the midst of the oil crash:

Trading Down

Demand for premium gasoline increased markedly during the price crash but has stopped growing amid a broader slowdown

Source: Energy Information Administration

Note: Year-over-year change in trailing 12-month average gasoline demand by type.

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Data from the Department of Transportation point to the same conclusion. Despite better jobs numbers, Americans are driving less. Estimated vehicle miles traveled fell slightly in April versus the same month last year. Rural interstate travel and the upper Midwest in general saw the biggest declines — something that may cause particular alarm in the White House as midterms loom. 

Country Roads

Outside of the West, driving data was also weak in April, especially on rural highways and in the upper Midwest

Source: Department of Transportation

Note: Change in estimated vehicle miles traveled by region and road-type in April 2018, year over year.

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Therein lies the reason why the president was thinking of OPEC on Independence Day. Every $10 added to crude oil prices equates to another 24 cents per gallon on gasoline, all else equal (that, by the way, would take the average pump price to $3.16, a level not seen since the fall of 2014).

If we see further increases over the next four months, Trump will need voters’ frustration to be channeled toward foreign agents rather than domestic policies. OPEC may well protest, but that would be missing the bigger issue for them.

The producers’ greatest ally during the past few years of lean prices has been the strong demand encouraged by those lean prices. In some countries, such as India and China, pump prices in local currency are already back around where they were before the crash. The president’s anxieties are ultimately also OPEC’s.

Oil Politics Is Local

Local pump prices are back around pre-crash levels in some key markets, even though crude oil remains substantially lower

Source: Bloomberg

Note: Gasoline prices in local currency. Performance indexed to 100.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Liam Denning at ldenning1@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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