It's OPEC vs. Trump on oil

Cheap oil pushes Saudi Arabia into further budget cuts
Cheap oil pushes Saudi Arabia into further budget cuts

Donald Trump has put OPEC on notice.

As OPEC meets Wednesday in Vienna, this could be one of its last chances to assert its power before Trump takes office.

"This is really OPEC's last hurrah to have a real impact on the global market. When Trump comes in, it will be tougher to control prices," says Phil Flynn, senior energy analyst at PRICE Futures Group in Chicago.

Trump has been clear that he wants America to be an even bigger energy power player on the world stage. The more oil the U.S. pumps, the less clout OPEC has to hike prices like it did during the infamous 1973 embargo.

"I've never understood why, with all of our own reserves, we've allowed this country to be held hostage by OPEC, the cartel of oil-producing countries, some of which are hostile to America," Trump wrote in his book "Crippled America."

This week Saudi Arabia, Iran and other members of the OPEC cartel are debating whether to raise oil prices by cutting -- or at least freezing -- production.

"If they miss this opportunity, they are not going to get another opportunity like this for a decade," predicts Flynn.

Related: Saudis believe Trump will unleash America's economy

The Saudis want a deal

Crude oil trades at about $45 a barrel. If OPEC fails to reach a deal Wednesday, it could easily plummet to $40 or below. If it does take action, prices will likely "test their 2016 highs" of $51.90 a barrel, says Fawad Razaqzada, a market analyst at Forex.com

"I think a deal is more likely to happen now than ever before," says Havar Blakset, a partner at Rystad Energy, an independent oil and gas consulting firm. He notes that Saudi Arabia is still OPEC's key player and this time around, the Saudis are the ones trying to drive the deal.

Saudi Arabia (and most energy producing nations) have been severely hurt by two years of extremely low oil prices. The Saudi government ran a deficit of nearly $100 billion last year. It even had to raise gas prices on its own people by 50%.

Many believe the Saudis intentionally kept prices down to try to run U.S. shale oil companies out of business, but the U.S. energy industry has remained remarkably resilient. The U.S. is on track to be energy independent by 2020 in a best case scenario.

Related: U.S. energy independence looks 'tantalizingly close'

Trump's wants 'energy revolution'

Trump wants to speed that time table up. In his first 100 days, he pledges to "lift the restrictions on the production of $50 trillion worth of job-producing American energy reserves." Translation: He wants more U.S. energy production. Fast.

To achieve his promised "energy revolution," Trump intends to open federal lands onshore and offshore to drilling and roll back President Obama's environmental restrictions on energy production. Even more worrying to OPEC is Trump's vow -- right on his website -- to stop importing energy from OPEC nations.

When Trump takes office, OPEC is "not going to be able to pull the same shenanigans with price and production wars," says Flynn.

Related: Trumponomics suddenly gets big Wall Street thumbs up

OPEC vs. Trump

The stakes are high for OPEC Wednesday to show it still has the ability to act decisively.

"Our best case scenario is that there would be a deal. But how big is it? And does it have meaningful impact?" says Naeem Aslam, chief market analyst at Think Markets in London.

Then there's the question of whether Saudi Arabia, Iran and others will even hold to a deal if they sign one.

For Trump, whatever OPEC does Wednesday probably doesn't matter much, if at all, argues Aslam. Publicly, the Saudis have said they think Trump will be good for the U.S. economy, which should translate into more demand for oil.

In a way, Trump "wins" if the nations agree to a deal because oil prices will rise. That will incentivize U.S. shale oil producers to drill and pump more oil. It may even help bring back some of the 200,00 jobs that have been lost in the energy sectors since oil prices really started to plummet in the fall of 2014.

But Trump also benefits if there is no deal because it keeps gas prices at the pump extremely low because that will help the economy as he's sworn in. That's a boost to consumers and businesses and it helps keep inflation in check. Trump's various plans for tax cuts and more infrastructure spending are likely to drive inflation higher.

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