3 Reasons Why Republicans Got An Election Break With Lower Oil Prices

3 Reasons Why Republicans Got An Election Break With Lower Oil Prices

For the last few months, President Trump and the Republicans have been worried that oil prices would become exceedingly high going into the midterm elections.

Gasoline prices are displayed at a gas station near downtown Los Angeles on Friday, May 18, 2018. (AP Photo/Richard Vogel)

In June, the American oil benchmark, WTI, hit a three and a half year high, reaching over $74 per barrel. If prices had continued to rise due to the sanctions on Iran, American voters would hold President Trump and the Republicans responsible . The worst part for Republicans was that they had inexplicably set the Iran sanctions to restart on November 4, just two days before the midterm elections. Some analysts predicted that the Iran sanctions could cause the price of the international oil benchmark to soar to $100 per barrel.

President Trump was clearly concerned, and he began a public campaign to pressure OPEC and its most powerful member, Saudi Arabia. His goal was to compel them to produce more oil to counteract the expected Iran decreases. He spoke to the Saudi king on the phone, he talked about it at rallies and he sent a series of tweets about it. He wanted Saudi Arabia to produce more oil, and he believed they owed it to the U.S. to act.

Now it seems that the president and the Republicans have dodged the political oil bullet. The average price of gasoline is still only about $2.84. This is far enough below the psychological barrier of $3.00 per gallon, that it does not seem likely to cause a problem before election day. There are three reasons oil prices have stayed down and saved the Republicans from a serious political headache.

  1. By far, the most important factor is that oil traders have realized that Iran is actually producing and exporting more oil than expected. In the spring, as oil prices were spiking, some forecasts expected Iran’s oil exports to drop much more than they actually did. The Trump administration says it intends to halt all oil exports from Iran. Despite this policy, it is politically useful to the Trump administration that traders see Iran exporting about 2.2 million barrels per day. This has helped tamp down the price of oil as election day approaches. In fact, the price of oil has fallen about 12.5% since its October high three weeks ago.
  2. Oil speculators could have easily been spooked by the political intrigue in Saudi Arabia concerning the Jamal Khashoggi affair. However, the rift between Saudi Arabia and the U.S. has not impacted oil prices. In fact, Saudi Arabia has pledged to further increase its production. Perhaps this was an attempt to garner favor with the U.S., but regardless, it has caused a drop in oil prices across the board.
  3. The stock market is falling. On Wednesday, the DJIA fell over 600 points. While oil and equities do not move in tandem, there appears to be an overall wariness of the part of investors. Perhaps the midterm elections themselves are making speculators uneasy. Perhaps more significant negative economic signs are impacting investors. Regardless, when stocks drop precipitously, oil often does too. (For a very clear example, see WTI’s $110 drop in only seven months at the start of the 2008 financial crisis).

Saudi Energy and Oil Minister Khalid al-Falih (C) arrives at the start of a three-day conference called Future Investment Initiative (FII) in the Saudi capital Riyadh on October 23, 2018. (FAYEZ NURELDINE/AFP/Getty Images)

Perhaps Trump’s persistent pressure on Saudi Arabia to increase oil production has paid off – or perhaps they just got lucky that U.S. voters won’t be looking at $3.00 or $4.00 per gallon gasoline prices as they head to the polls on November 6.

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