Oil prices tumbled Friday after Saudi Arabian and Russian oil ministers said they’re likely to boost production soon in response to political troubles that could slash output in Iran and Venezuela.
If OPEC officials follow through at a meeting late next month, the move could modestly reduce gasoline prices for American consumers, but likely wouldn’t alter the longer-term climb in fuel costs amid strong global demand, experts say.
“It probably isn’t going to be enough to change the landscape,” says Phil Flynn, senior energy analyst with the Price Futures Group.
West Texas Intermediate fell $2.83, or 4%, Friday to $67.88. The U.S. benchmark is down from a peak of $72.58 earlier this week but still up 13.6% this year.
A production boost would mark at least a partial reversal for OPEC, which cut output by 1.8 million barrels a day in January 2017 to relieve a global oil glut and support prices.
But President Trump’s decision earlier this month to withdraw from the Iran nuclear deal and reinstate sanctions against that oil-rich country threatens to choke off at least a few hundred thousand barrels a day from the global market. Meanwhile, Venezuela is ensnared in a political crisis that could curtail production by 1 million to 2 million barrels a day, Flynn says.
While Saudi Oil Minister Khalid Al-Falih and his Russian counterpart, Alexander Novak, are largely moving to offset that deficit, other developments are also playing a role.
Trump ripped OPEC last month for high oil prices, tweeting, “Looks like OPEC is at it again.”
Trump has forged a close relationship with Saudi Arabia, and that country is aiming to defuse any political tensions caused by high crude and gasoline prices, says Tom Kloza, global energy analyst for the Oil Price Information Service. Also, a run-up in crude and gasoline prices could crimp global demand, ultimately harming the oil cartel, he says.
An agreement among OPEC and non-OPEC countries next month could lift production by 300,000 to 1 million barrels a day. But Flynn says even the higher figure would not be enough to offset the lower output from Iran and Venezuela. And, he notes, global demand continues to rise. He expects oil to climb back into the $70 to $80 range within weeks.
Kloza, however, says an increase of 1 million barrels a day could push down crude prices to about $60 in the medium term. He figures unleaded regular prices would fall about 30 cents from the current $2.97 average.