MW Trump may have given the Saudis and OPEC the excuse they needed to boost oil production

By Myra P. Saefong

President tells economic leaders in Davos he'll ask Saudi Arabia, OPEC to lower oil prices

U.S. President Donald Trump on Thursday proved that words can be just as powerful as actions, after his remarks at the World Economic Forum led to a downturn in oil prices.

But whether Trump's remarks will lead to action - especially when it comes to oil production from Saudi Arabia and the Organization of the Petroleum Exporting Countries - remains to be seen.

"I'm ... going to ask Saudi Arabia and OPEC to bring down the cost of oil," Trump said in remarks delivered remotely to the World Economic Forum annual meeting in Davos, Switzerland. He suggested that lower oil prices would pressure Russia to end its war with Ukraine, since Russia's national coffers depends heavily on energy sales.

His comments prompted oil prices to erase early gains and finish lower Thursday, with U.S. benchmark West Texas Intermediate crude (CL.1) (CLH25) for March delivery settling at $74.62 a barrel on the New York Mercantile Exchange - down 82 cents, or 1.1%, after touching an intraday high of $76.

"The oil market is struggling to keep up with the bombardment of rhetoric, leaving it to whipsaw from day to day," said Matt Smith, lead U.S. analyst at Kpler.

"Today, Trump is focusing on OPEC; yesterday, it was sanctioning Russia; the day before it was on Canadian and Mexican tariffs," Smith said. "We remain in a time of heightened uncertainty, where oil prices could pop or drop at any given moment based on what the president says."

No guarantees

Still, Trump's remarks at the forum are "certainly in keeping with his desire for lower gasoline prices and his clear intention to use energy as leverage over Russia to end the war in Ukraine," said David Oxley, chief climate and commodities economist at Capital Economics, in a Thursday note.

Of course, Saudi Arabia would "not be guaranteed to heed a request" by Trump to expand oil production to bring down global oil prices, he said - noting that the Saudis' economic ties have moved in favor of China, which is now their top trading partner.

That said, there have been "signs of warming relations of late, and Trump is known to have good relations" with Saudi Arabia Crown Prince Mohammed bin Salman, Oxley noted. In a call with Trump on Thursday, the crown price said the kingdom wants to invest $600 billion in the United States over the next four years.

And it's clear that the Saudis and OPEC still have the ability to strongly influence oil prices.

"We all know the reason why we have such a tight [oil-supply] market is that OPEC, of course, has been very good complying to production cuts," said Phil Flynn, senior market analyst at the Price Futures Group. The market is getting a sense that Trump will be able to pressure OPEC into raising production, he said.

Saudi officials have also made it clear that they are frustrated with overproduction last year among some members of OPEC and its allies, together known as OPEC+, according to Oxley.

Capital Economics has argued on a number of occasions that the "risk of Saudi Arabia opening the floodgates to claw back market share was growing," he said. "This explicit invitation from Trump might be the cover that [Saudi Arabia] needs to open the spigots."

'This explicit invitation from Trump might be the cover that [Saudi Arabia] needs to open the spigots.'David Oxley, Capital Economics

Priorities and conflicts

Trump's remarks, however, also suggest he's "prioritizing lower gasoline prices over providing an incentive for U.S. oil producers to increase their output," Oxley added. That would go against the president's "drill, baby, drill" mantra for U.S. producers.

Read: Trump promised to lower gas prices - but his tariffs could help raise them instead

Estimates put breakeven oil prices for new wells in key oil-producing regions in the U.S. at between $60 and $70 per barrel, so oil prices wouldn't have to fall that far from current levels before it would become "uneconomic to develop some of these higher-cost new wells," said Oxley. "And it would be a big blow to Trump's obvious aspirations to exploit Alaska's even higher-cost oil resources."

For now, oil prices have declined in reaction to the possibility that OPEC may raise production.

On the flip side of that, however, there's also the reality that OPEC "may have to raise production as ... Trump starts to enforce sanctions on Iran and Russia," the Price Futures Group's Flynn said.

"This is going to be just the first chapter in the Donald Trump energy policy - so you better buckle up, because it's going to be an incredible ride," he said.

-Myra P. Saefong

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January 23, 2025 15:35 ET (20:35 GMT)

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