OPEC quietly telling oil market to get comfy with lower prices



If you haven’t noticed, it has been a little cheaper to fill up at the gas station for the last few weeks. According to the US Energy Information Administration, the current national average cost for a gallon of gasoline is $3.299. That’s down about a nickel from the previous week and around seven cents lower than this time last year. It doesn’t look like this is just a temporary blip either because there’s a strong possibility that Saudi Arabia may compel OPEC for lower oil prices for the near future.

The boom in US shale oil and deep-water wells is causing the crude supply to increase and the price of a barrel to nose dive. According to Reuters speaking to unnamed OPEC insiders, the Saudi Arabia and Kuwait say thay don’t want to reduce their own production, and a possible solution is to lower oil to $90 or as low as $80 per barrel for as long as a year or two. That would make further expensive investments in drilling less attractive in the US and Russia and maintain the Gulf’s market share.

“Until about three days ago the absolute and total consensus in the market was the Saudis would cut,” said Robert McNally, president of the Rapidan Group energy consultants to Reuters. “That is no longer a foregone conclusion.”

However, don’t run out to buy that new gas-guzzler quite yet because there’s a chance this might just be a tactic by Saudi Arabia to take advantage of the rest of OPEC. The country may be willing to cut oil production but just doesn’t want to be the only one doing it. According to Reuters, Venezuela is one example of a place that is refusing to turn down the taps and wants to keep things at over $100 a barrel. By letting prices slip briefly, Saudi Arabia could sustain the lower revenues until other members decide to reduce pumping with them, which would then cause the cost per barrel to rise again.

A meeting on November 27 could decide the future course of action, according to Reuters. At least until then, visiting the gas station might be a little less painful on the wallet.

[Source: Autoblog]

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