President Donald Trump is heaping praise on crude oil’s massive sell-off.
In a tweet Wednesday morning, Trump said lower oil prices were a “big tax cut for America and the world” and encouraged Saudi Arabia to pull on its supply-demand levers to push prices even lower.
Don’t expect these levels to last for too long, says Tom Kloza, co-founder of the Oil Price Information Service.
“I believe that we are seeing an ‘oversold’ chapter for oil,” Kloza told CNBC’s “Futures Now” in an email on Wednesday.
West Texas Intermediate crude hit the year’s peak of $79.90 a barrel in early October. Since then, it has plummeted nearly 31 percent.
On Tuesday, prices plunged more than 6 percent after Trump defended Saudi Arabia against their alleged involvement in the murder of journalist Jamal Khashoggi. Markets perceived Trump’s friendliness with the kingdom as potentially helpful in pushing them to raise oil production.
While Kloza says temporary weakness could take crude down to $50 a barrel, it won’t take long for prices to spring back.
“Oil can be stabilized in December and will be helped by the higher demand as U.S. refiners ramp up to over 18-million barrels a day of crude use. A cold northern hemisphere winter juices up demand as well,” said Kloza.
Into next year, the Trump administration’s policies will still act as a wild card, but generally Kloza expects higher prices in the intermediate-term.
“Anything can happen and no one can really program Donald Trump and his strategy (or whimsy) into any of the typical models,” Kloza said. But, “throw in an occasional problem from Libya, Nigeria, Iraq, Venezuela, etc. and you can make a case for the higher numbers in the first half or three-quarters of 2019.”
Beyond that, the forecasts grow murky, says Kloza.
“It gets tougher since we’ll see the U.S. production climb by another million barrels per day, provided that there is no price collapse,” he said.
U.S. crude production climbed to 11.3 million barrels a day in August this year, the first time it has ever crossed the 11 million-barrel mark, according to the Energy Information Administration.
