Normally I would not write about such political / pop culture absurdities as The Donald, but in this case, I believe the situation warrants comment, especially with every trader and his brother getting ready to get long oil.
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“Trump has a surprising response to speculation that the turmoil in Egypt and other countries in the Middle East could push oil prices to as high as $200 a barrel.
“It also could go the other way. Frankly, the Middle East is a tinderbox. It’s going to explode. OPEC will probably be destroyed if it explodes, and oil prices could go the other way.
“I understand economics. You break up what would normally be an illegal monopoly, OPEC, and break it up very strongly. The Middle East is exploding, and I’m saying that could have a positive impact on oil prices.
“If you look at oil right now, it’s soon going to be $100 a barrel. Far too high. It’s set by OPEC. I think OPEC would explode with the Middle East and that wouldn’t be the worst thing in the world.”
Trump has especially harsh words for OPEC and its grip on oil prices.
“I think it’s unfair. I think it’s illegal,” he declares. “If you have a store and I have a store and we collude and set prices, we go to jail.
“Here you have 12 men, in this case all men, they sit around a table and they set the price of oil.
“We have so much oil. There’s so much oil out at sea. I see $3.50 for a gallon of gas. Cars are lined up trying to get it, and at $3.50. It’s a shame. It’s a ridiculous shame.
“Plus we don’t use our natural gas. We have more natural gas than anybody. Why we not using it is an amazing thing.
“Abu Dhabi, which has plenty of oil, just went to all natural gas for transportation because they want to sell us the oil at exorbitant prices. When you tell me about Obama and what he’s doing in the Middle East, I don’t think he’s doing anything in the Middle East.”
Trump warns of the dangers to the United States posed by OPEC and high oil prices.
“We have to do something about OPEC because that’s the life blood of the country. Right now, until we get on natural gas and other things, they really have us, and they’re sitting around inflating the price.
“When we had our problem not so long ago, a few years ago, oil was almost $150 a barrel. They’re blaming the banks, and the banks were terrible, and lots of other things were terrible, but I give a lot of the credit for the almost collapse of this country to the price of oil. It’s going to be up there again very soon and you’re going to have another catastrophic problem.
“By the way, any time a country comes up with oil they invite them in. Join OPEC. The United States is stupid, the people who represent the United States are really stupid, so join us and we’ll take advantage of the United States, sell them oil at inflated prices. They’re draining our life blood. We cannot allow that to continue. What kind of power do we have over OPEC? They wouldn’t even exist if it weren’t for us.”
Asked where he thinks the price of oil is headed, Trump responds: “I think it could go, with proper leadership, down to $40 a barrel. I think if we continue the way it is, it’s going to go up to $150 a barrel.”
Agree or disagree Woodshedder?
Agree that anytime something significant happens like Egypt changing political hands, there are unintended (unforeseen) consequences, and agree that with the markets, these consequences are often contrary to typical thinking.
That being said, in the short term, oil goes higher.
Doesn’t some of (if not all) of the blame go to big oil? They, like the big banks own Washington. What happens to big oil profit margins at $40.00 a barrel oil?
Ken, OPEC is a monopoly. Trump’s point is that without the monopoly setting prices, we may actually see oil fall. My belief is that a monopoly has more control over prices than any relationship that might exit between oil companies and the US gov’t.
The question I would put back to you is this, “Is Walmart to blame for high prices on consumer items?”
Not even a monopoly, by definition I would say it’s closer to a public cartel. I think Trump is absolutely right on this.
OPEC is international, who would outlaw it? Trump is a typical parochial American imposing his values on someone else. OPEC does not set the price of oil. They are a factor, but they don’t control demand and only control part of the supply.
Cascadian, OPEC does not need to be outlawed to be broken up. It just needs a few of its large oil producing members to choose to set prices via the market, or in a way that is different from how OPEC would like to see them set.
Do you know how much of the supply they control? I don’t, and don’t have enough time right now to research it.
Also, do you not think that controlling supply doesn’t affect demand?
http://www.wisegeek.com/how-does-opec-influence-gas-prices.htm
Thing is OPEC members are notorious for not following their set production limits anyway. There’s always a few rogue countries in the mix willing to produce more oil than they’re supposed to or cut production when they’re supposed to increase it.
OPEC has set a price of $80 / Bbl so $90 is a welcome surprise for them and I’m sure they won’t protest if it goes higher, as long as it doesn’t go above $100 and gain the spotlight of the US Congress with the possible attendent hearings…
Wood — Is that before or after the triple-split? Or maybe that’s the metric system BBL. 😉
Two things:
1. “Illegal” is a bizarre choice of words.
2. I wouldn’t be surprised if oil prices collapse anyways, without OPEC breaking up. Oil much above $100 will start to cripple economies.
The Donald, as ridiculous as he is, is not entirely stupid. The dude wants to run for president, and this is the proverbial toe in the water. People in New York are already talking about it, and beating up on OPEC is like beating up the big bad ole dragon….
To $40. Maybe. But the dissolution of OPEC–like, say, Saudi Arabia, Libya, Oman, the UAE, Iran, Iraq, Venezuela, is about as likely as me striking oil in the West Village. Come now, fellas.
Good points. Still, it is fun to think about. I am a huge believer in the power of unintended consequences.
Scotty Bleier says Oil is high because traders are trading it up. Its not OPEC.
They have us but it’s our own fault. If it inflates enough, maybe we will get off our lazy asses and use the other resources available to us, but it has to hurt first. As long as everyone still has SUV’s, it doesn’t hurt enough. Thanks for this post Woodshedder. I like the other side of the coin.
$10 for a .30 cent pack of cigarettes.COIN BANK ?