OPEC meeting could set direction of oil prices
Officials from major oil-producing nations are expected to agree this week to boost output, but just how much they will open the spigot – and the effect on oil prices – remain wild cards.
Ministers from the Organization of the Petroleum Exporting Countries and non-OPEC nations led by Russia are meeting Friday and Saturday in Vienna, and it could be a difficult and uncomfortable gathering. The cartel’s largest producer, Saudi Arabia, wants higher prices but hears President Donald Trump, leader of its most important ally, lobbying openly for lower prices.
Analysts expect the group will consider an increase of somewhere around 1 million barrels a day. That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 percent.
Benchmark U.S. crude hit its highest level in more than three years in May, but U.S. and international prices have eased since then in anticipation that OPEC will approve more drilling. On Wednesday, U.S. crude closed at $65.74 a barrel, down from a peak of nearly $73 last month, and Brent crude, the international standard, closed at $74.61, down from $80.
The U.S. average for gasoline stood at $2.87 a gallon on Thursday. Patrick DeHaan, an analyst for GasBuddy, a gasoline price tracking service, said a middling OPEC increase – more than 600,000 barrels per day – would make it less likely that Americans will pay an average of $3. A big OPEC deal – adding more than 1 million barrels – could cause prices to dip into the $2.60s or $2.70s this summer, he said.
Any production increase would help offset a decline in output by Venezuela, an OPEC member consumed by economic and political crisis, and the prospect of reduced exports from Iran – OPEC’s third-biggest producer – now that the U.S. is in the process of re-imposing sanctions over that country’s nuclear program.
Oil demand has been rising faster than expected, pushing prices higher despite a big increase in U.S. oil output. The International Energy Agency, which represents consuming nations, expects demand to grow more slowly in the second half of this year partly due to rising oil prices — but still 1.35 million barrels a day higher than the same period in 2017.