What Will Donald Trump Do About The Collapse In Oil Prices?

Trump did not depend on Wall Street or corporate America to become president. While Trump is completely pro business his insistence on Making America Great Again has got all Americans joining the bandwagon. Meaning Trump will likely get re-elected again come November 2020. Unless the Corona Virus prolongs - which it should not.  The US tally is now 818,000 cases with over 45,000 dead.

Before the Corona Virus the Dow Jones was going to the stratosphere. The Corona Virus has now killed the Dow. It has also killed the Nikkei, the DAX, the London Stock Exchange and many other stock markets around the world. Once the Corona Virus restrictions are over the Dow Jones will move again. 

The oil price war between the Saudis and Russia did trigger the collapse of the oil prices.  But we have to note that the Saudis and Russia can only control their production volumes.  No one can control the price of oil. Yes the prices would go down but just how low the prices will go is beyond the control Saudi Arabia or Russia. 

The price of oil is a factor of the real demand for oil in the world today - even before the Corona Virus.  The world still needs plenty of oil but the world will not pay as much as before. There are alternatives available and efficiencies are increasing. 

The real oil price killer is the transportation industry which consumes about half of world oil output with cars and trucks alone taking up about 25%. There are now huge efficiencies in the transport sector. The 50 miles per gallon car is everywhere. My Perodua Axia get-about gives about 50 mpg. 

Plus the huge advances in electronics, computer software and engineering all save energy. We can get more work done for the same or lesser oil consumption.

Here is a bad example:

155mm ramjet assisted artillery round

Indian engineering students, the US Army, the Norwegians and others can now fire rocket and ramjet assisted artillery shells twice the distance (60 miles or more) at half the cost or lower and with pin point accuracy. Meaning you need less artillery shells to kill human beings from a much safer distance. I know this is a bad example but what I am trying to say is that all over the world there are huge energy savings to get more things done for less.

Right now the oil industry is dying. More dangerously the Oil Majors are suffering. And those people are very, very powerful. In the age of George Bush Senior the US may have instituted regime change in Saudi Arabia by now.

But America is a huge US$14 trillion manufacturing economy with 330 million people who created and sustain the highest standards of living in the world. America is a huge consumer of energy. So US$1 per barrel oil will benefit them tremendously. No one is going to be unhappy with lower energy prices. And Trump will leave it at that. No need to regime change Saudi Arabia.

Trump did instruct the US government to buy (about 75 million barrels) of oil to top up their Strategic Petroleum Reserve or SPR. The move was to take advantage of the low oil prices and also to help out the US oil producers.  I don't think it helps oil producers much. 75 million barrels is about 10 days of American production (10 million++ barrels per day). 

By the way the info I get is that Petronas has cut our oil production  (from 600,000 barrels per day to about half of that only, about 300,000 barrels per day? So at say US20 per barrel (today's price for the more expensive Brent) our oil revenue is now about US$6 million per day (RM26 million)??  That is less than RM10.0 Billion a year. We are screwed.

The US does not need Middle East oil anymore. The US does not need Saudi Arabia anymore. But thanks to the Iranian acquisition of Lebanon, and now Iraq, plus their strong presence in Syria and also in Yemen plus the continuous Iranian threat to wipe out Israel - the US  will keep the Saudis in power. The US and Israel need buffers against the irrational Ayatollahs.  Until the Ayatollahs are kicked out and a sane government is put in place in Iran. 

The Ayatollahs have brought the Iranian people down to their knees. Even without the economic sanctions. They just do not know how to live in a modern world. They will be thrown out - violently. Exactly when is still work in progress. But it will happen. The delay is because the Iranian people do not yet have a clear cut opposition leader who can rally them against the Ayatollahs. The exiled son of the late Shah of Iran can be a rallying point but he does not talk about democracy enough. People seem to just love sitting on thrones.

So low oil prices are here to stay. This is good news for the whole world. My personal relief, low oil prices will help curb price inflation.  For Malaysia price inflation can create riots. It will certainly change governments. Or at the very least price inflation will change prime ministers.