By Barani Krishnan
Investing.com – A familiar friend has returned to give oil bears the upper hand: President Donald Trump.
Amid preparations for nuclear talks with North Korea’s leader, the U.S. president found time early on Monday to tweet that oil prices were too high and OPEC should work on bringing them lower, sending crude markets tumbling more than 3% and short-circuiting their broad rally of the past fortnight.
New York-traded crude was down $1.94, or 3.4%, at $55.32 per barrel by 12:25 PM ET (17:25 GMT). It has risen nearly 9% over the last two weeks, hitting a three-month high of $57.81 on Friday.
, the global oil benchmark, lost $2.27, or 3.4%, to trade at $64.98 per barrel, after peaking at $67.72 last week, its highest since November.
Trump ran an unofficial White House campaign against pricey oil with his tweets last year as fears of short supply from U.S. sanctions on Iranian oil exports and production cuts by OPEC and Russia drove WTI to nearly $77 a barrel and Brent above $86.
The OPEC+ alliance decided last summer to suspend its production cuts and expand supplies to appease the president, who had appeared worried about the fragile U.S. economic recovery and the impact of high pump prices on midterm elections last November.
But right after the output cuts stopped, the president unexpectedly authorized waivers on the Iranian export sanctions, fuelling fears of excess supplies. As a result, both WTI and Brent lost about 40% between early October and Christmas, making Trump an unlikely friend of oil bears.
OPEC+ decided in early December to reintroduce production cuts from January, and together with U.S. sanctions on Venezuelan oil, crude prices have bounced back more than 20% so far this year. Prior to Monday’s tweet, Trump had not tweeted about oil in well over two months.
“Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!” Monday’s tweet read.
Some analysts expressed surprise at the impact the president had on the market, notwithstanding the fact that some investors might have been looking for an excuse to sell and lock in profits from the rally of the last fortnight.
That crude prices fell as much as they did on Trump’s tweet “is absolutely silly,” said Scott Shelton, energy futures broker at ICAP (LON:) in Durham, N.C.
But Shelton agreed that the rally of the past two weeks was overdone. “A lot of bullish macro has been built into the market and we are ripe for a correction, in my view. I would think that WTI could see itself back under $55, with only a bullish inventory report generating enough buying to offset it.”
Liquidity was also a problem for market bulls, with many participants being away for the International Petroleum Week in London, he said.
Some took the president’s tweet in their stride, pointing to Goldman Sachs (NYSE:)’ latest forecasts for $70-$75 Brent in the near-term as proof of oil’s underlying strength.
“Despite the very bullish fundamentals, you cannot underestimate the power of the tweet,” Phil Flynn at The Price Futures Group brokerage in Chicago, said, acknowledging Monday’s market reaction.
But he added that with the tight supply situation worsened by the sanctions on Venezuela, the only way Trump could tamp down the market was to release oil from the U.S. Strategic Petroleum Reserve — something the president has tried to avoid. “If he thinks OPEC is going to help him out, forget about it,” Flynn said.