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“What was so interesting – among many very interesting things in this unprecedented event – was the turnaround, the backbone of Donald Trump,” IHS Markit vice president Yergin told CNBC “Street Signs” on Monday. .
Just a few weeks ago, Trump said falling oil prices in early March was “good for the consumer” because it meant lower gas prices. The drop in crude prices was sparked by an oil price war between Saudi Arabia and Russia after Moscow rejected an OPEC proposal to cut 1.5 million barrels of production a day.
The sharp drop in oil prices has spurred massive investment and job cuts in the US shale industry, which has some of the highest production costs in the world.
But Yergin said, “(Trump) has come to view this as a national security problem, also a job problem, and a very important factor in the American economy … and he just intervened. “
“It must be the largest and most complex agreement ever (Trump),” said Yergin. “Not only was he a negotiator, but he was also a divorce mediator. “
Yergin said there were two main factors that led to the reversal of the agreement which, just six weeks ago, “would not have seemed possible”.
First, he said, the price of oil was at risk of crashing without agreement, as the space available in stocks was limited. This would have had “serious repercussions” beyond the petroleum industry itself and other sectors such as finance.
The other determining factor was probably due to a shortage of demand for oil, where “producers have found that they cannot sell their oil.” Demand for crude oil has suffered a blow in recent weeks as measures taken by the authorities to stem the spread of the coronavirus pandemic have frozen major economies.
“I think all of these things came together, but then it was this negotiator … Donald Trump who called,” said Yergin. “I would say it looked like an impossible mission a few weeks ago. It turned out that it was a possible mission. “
The comments came after OPEC + finalized a deal to cut production by 9.7 million barrels a day – the largest production drop in history.
OPEC + hopes that countries outside the group, including the United States, Canada and Norway, will also cut production in order to support prices. Trump, for his part, noted that market forces would naturally restrict production in the United States, after ceasing to say that the United States would reduce production.
Agreement averted “disaster”
Commenting on the OPEC + deal, Yergin said he had “saved time” and avoided what is known as a “tank top” from late April to early May.
He also said that this solves another problem of the accumulation of stocks so high that they would have left market pressure over the next few years.
“This agreement has a duration of two years, so it also aims to manage stocks down during this period,” said Yergin. “What this has done is avoided which would really have been a disaster for the oil industry and I think it gives some stabilization. “
However, he admitted that the whole problem was not resolved, although the agreement “goes far” and that the alternative was “a fairly steep fall”.
– Pippa Stevens and Natasha Turak of CNBC contributed to this report.