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Abu Dhabi, UAESunday 23 September 2018

President Trump wants lower petrol prices, but does he?

Discreetly, the big oil companies want higher crude oil prices and will say so in the context of needing them to encourage steady investment

U.S. President Donald Trump looks on as he arrives for the G20 leaders summit in Hamburg, Germany Axel Schmidt / Reuters
U.S. President Donald Trump looks on as he arrives for the G20 leaders summit in Hamburg, Germany Axel Schmidt / Reuters

“Gas prices are the lowest in the US in over ten years!,” the president of the United States, Donald Trump, tweeted yesterday. “I would like to see them go even lower.”

The statement tweeted from @realDonaldTrump was not surprising from the undeniably populist president, coming as it did at the end of the July 4, Independence Day holiday, the peak of America’s annual “driving season”.

Mr Trump was in his formative 30s in New York in the 1970s when the image of long queues at American petrol stations was seared into the public imagination. Lower petrol prices has since been a key political barometer in the US, where taxes on petrol are around US$0.50 a gallon, compared to an average of $2.62 a gallon in the rich countries of the OECD as a whole, according to the Tax Foundation, an advocacy group in the US.

But does the notoriously capricious US president really want lower petrol prices?

Is that the advice he is getting from his cabinet members, such as secretary of state Rex Tillerson, the former head of ExxonMobil, energy secretary and former Texas governor Rick Perry, or Scott Pruitt, the former oil and gas industry attorney, now environmental protection agency head?

Oil companies, of course, never call publicly for higher oil prices. In any case, it is a highly competitive industry in the US, where margins tend to be thin. The most competitive independent refiners generally want crude oil prices to be lower and are focused on margin rather than the actual price at the pump.

But for the big integrated oil companies, which includes Royal Dutch Shell, BP, and Chevron, as well as ExxonMobil, there is a fairly strong correlation between higher oil and petrol prices and their bottom line.

Discreetly, the big oil companies want higher crude oil prices and will say so in the context of needing them to encourage steady investment to ensure there is no shortage of oil - and even higher price spikes - down the road. The International Energy Agency (IEA), the rich countries’ energy watchdog, has been beating that drum for some time and aligning with Opec countries on that position. The IEA says higher oil prices are needed furthermore to encourage investment in alternative energy to cut greenhouse gas emissions.

For now, the world must take president Trump at his word. He likes the fact American consumers are enjoying low petrol prices that have resulted from a glut, driven not least by a resurgent shale oil industry. But it wouldn’t be surprising to see him shift that position if the shale sector starts to hurt again, and there have been recent signs of that.

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