The Trump Administration is Manipulating Oil Prices - This Will Backfire
Price Suppression Leads to Higher Prices Over Time
This past weekend, President Trump reportedly canceled a large planned attack on Iran because negotiations were supposedly progressing toward an agreement that would reopen the Strait of Hormuz. Trump repeated that message Monday afternoon, saying the public would likely know the status of the negotiations “today or tomorrow” and that the first phase of any agreement would be reopening the Strait.
These were the latest in a long series of pauses, extensions and claimed diplomatic breakthroughs since the war began:
March 23–26: Trump twice postponed attacks on Iran’s power grid, citing productive negotiations.
April 7: Trump announced a two-week ceasefire to allow time for a proposed agreement.
April 21: The ceasefire was extended indefinitely. Strikes resumed May 8.
May 18: A major strike was held off because serious negotiations were reportedly underway. Strikes resumed by May 27.
June 11: Trump canceled a threatened attack after claiming a negotiating breakthrough.
June 17: The two sides signed an initial agreement and began a 60-day period to negotiate a final deal.
July 27: Trump paused daily strikes to give diplomacy another chance.
August 1: Trump canceled another planned attack after claiming that Middle Eastern allies had reached the parameters of a deal that would reopen the Strait.
Iran has repeatedly denied that it is negotiating with the United States. Foreign Ministry spokesperson Esmail Baghaei said that Tehran is talking only with Oman about a temporary route for safe navigation through the Strait. That said, Iran has denied negotiations in the past even while talks were underway, including shortly before the first MOU was signed.
This pattern of market-moving announcements strongly suggests that some of Trump’s comments are primarily intended to “jawbone” oil prices lower, and by doing so, push US stock and bond markets higher. Back in January, when oil prices were much lower, I highlighted how price suppression attempts like these have historically led to much higher prices in the medium to longer term, and that their recent effectiveness increased the odds of higher oil prices sooner than later:
Jawboning may not be the sole extent of the Trump administration’s willingness to intervene in oil markets. Over the weekend, the United States and Japan confirmed coordinated purchases of yen after the currency fell to a 40-year low in order to help support it. This interference is notable because average daily spot trading in the yen is approximately seven times the notional value of daily NYMEX WTI futures trading, suggesting that if government intervention can move a market as large as the Yen currency market, then they surely can do the same in the much smaller oil market.
I address evidence that the U.S. government is shorting oil futures below, but this Yen intervention does show the capacity and willingness to intervene directly - in a much larger market. Considering the large, ongoing inventory drawdowns yet the relatively low price of crude oil, and the clear focus of the Trump Administration on oil prices, it’s understandable why there is an increasingly widespread view that oil prices are being manipulated.
Below, I review oil market fundamentals and share my thoughts on government intervention in the oil market.
Disclaimer: This is for informational and educational purposes only. This isn’t an offer, solicitation or investment recommendation. Please consult an advisor and do your own diligence.
