President Trump said he was willing to impose a tax on foreign oil if Saudi Arabia and Russia can’t reach a production agreement that has caused the price of oil to plummet and upend the global energy market.
“If they don’t get along, I would do tariffs, very substantial tariffs,” Trump said Sunday, referring to Saudi Arabia and Russia. The comments came during the daily White House coronavirus briefing.
“We would essentially be saying ‘we don’t want any foreign oil,’” the president said.
Ultimately, President Trump said he didn’t think he would have to follow through on this threat.
“I would use tariffs if I had to. I don’t think I am going to have to. Because Russia doesn’t benefit by having this and Saudi Arabia doesn’t benefit by having this. Oil and gas are their major sources of income. So it’s obviously very bad for them” he added.
Trump’s threats come as oil prices are set to plunge again. These prices offset the gains from last week’s massive rally that saw prices rise 32%.
West Texas Intermediate crude was 7% lower Sunday night. It traded more than $2 per barrel lower than it closed last week.
Oil Prices in the International Scene
The fear of a “no-deal” between Saudi Arabia and Russia has reignited, despite President Trump’s insistence last week that the two sides are close to an agreement to cut production.
OPEC and other oil-producing counties decided to postpone today’s meeting to Thursday. This came after the two countries engaged in more parley over who’s to blame for the price war. On Friday, Russian President Vladimir Putin once again put the blame for the crash in prices on Saudi Arabia. The latter, in turn, immediately refuted the claim.
“The Russian Minister of Energy was the first to declare to the media that all the participating countries are absolved of their [output] commitments starting from the first of April, leading to the decision that the countries have taken to raise their production,” said Saudi Energy Minister Prince Abdulaziz bin Salman in a statement.
With tensions still at the boiling point, the meeting appears to be an all-or-nothing situation, and many fear the worst.
A Negative Outlook
Oil prices are “probably going to crater,” as per John Kilduff of Again Capital. He also mentioned that a lot of optimism was priced into oil on Thursday and Friday. “With this new Saudi, Russia spat, it doesn’t look like it’s going to come together,” he added.
Eurasia Group’s Ayham Kamel agrees. “The details of the emerging framework are complex, even if the overall picture seems clear on the surface: All in or no deal,” he said. “Politically and economically, Putin and Prince Mohammad need US participation in some shape or form,” he continued.
Even Iraq’s oil minister said OPEC and its allies need support from producers that are not part of OPEC+. Kameel also made mention of the United States, Canada and Norway.
Vital Knowledge founder Adam Crisafulli believes non-OPEC countries will be willing to follow any plan that cuts production. “It still looks like something will happen on the supply front,” Crisafulli said. “Saudi Arabia and Russia continue to publicly feud, but nearly every producer on the planet is pleading for action and even countries like Canada and Norway, which usually don’t participate in global supply actions, now seem willing to contribute,” he went on to say. “It’s unlikely 10M barrels come offline, but some sort of a curb seems very probable by the end of this week,” he added.
However, some fear that even with massive production cuts, the drop in demand will continue to drag down oil prices.
“The energy sector is facing its most challenging fundamental period since the Great Energy Depression of 1981-1995,” said Kurt Hallead, Royal Bank of Canada’s co-head of global energy research. “On the oil front, demand is set to decline by amounts never before seen driven by the COVID-19 global economic shock.”