“It’s not a big deal,” said Rusty Brasil, CEO of RBN Energy, another Houston-based advisory firm. But he added, “The OPEC Plus cut will certainly affect the market, just by the signal it sends that OPEC Plus is ready to cut production to keep the price of oil from falling.”
Volatile prices in oil markets have become familiar in recent years.
During the 2008-2009 financial crisis, prices fell to $35 a barrel from $145 in just five months. In 2014-2015, as economic growth slowed, oil fell more than 50 percent in nine months, to $45 a barrel. Prices rose again until the Covid-19 pandemic hit, when demand collapsed. Within hours, they briefly collapsed to sub-zero $18, as producers had to pay buyers to take oil they had nowhere to store.
With its economies at risk, Saudi Arabia and its allies aim to stabilize the market as the world slowly recovers from the pandemic. After cutting nearly 10 million barrels per day of production during the pandemic, OPEC Plus gradually restored production until last month, when announced a slight decrease.
“OPEC Plus wants $100 in oil,” said Scott Sheffield, CEO of Pioneer Natural Resources, a major Texas oil company. Sheffield predicted that oil would stabilize at $90-$100 a barrel and stay there as long as the slowing economy kept demand low. “There will be a slight increase in the pump,” he said.
After reports of a possible production cut in OPEC Plus made headlines over the weekend, the price of West Texas Intermediate crude, the US benchmark, rose, 5 percent on Monday and another 2 percent on Tuesday, but it’s still about $85, about where it was weeks before the invasion of Ukraine. The price of Brent crude, the global benchmark, is about $90.
The average price of a gallon of regular gasoline fell to $3.80 from $5 on June 14, according to the AAA Automobile Club, although it has risen slightly in recent days.
For most of this year, the Biden administration, with limited success, has urged Arab Gulf states to pump more. While Biden pushed for price cuts at the pump, the Saudis were more concerned that prices had fallen dramatically and that global spare capacity was insufficient at a time of global instability.
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