OPEC Infighting and Coronavirus Adds Up to Affordable Gas

Matt Posky
by Matt Posky
opec infighting and coronavirus adds up to affordable gas

With the coronavirus keeping people indoors and shale drilling keeping U.S. oil prices relatively stable, you’ve probably noticed gasoline bills being quite reasonable of late. Well, don’t get used to the sums you’re paying now, as analysts project fuel prices will drop even lower as 2020 progresses. While you might think this is due to national quarantines and lessened demand, you’d only be half right.

Last week, the Organization of the Petroleum Exporting Countries (OPEC) failed to strike a deal that would have enacted production cuts to better stabilize the market. Instead of slashing output, Saudi Arabia started slashing prices as it sought ways to ramp up production. Russia immediately responded by promising to increase its own output, leading to what looks like an all-out price war.

On Monday, oil prices dropped nearly 25 percent — knocking off about 10 bucks per barrel and leaving the per-barrel price hovering around $31. It was the largest single-day decline for U.S. West Texas Intermediate crude and Brent crude since 1991. While Tuesday morning saw a meaningful bump in prices as portions of the market came to its senses, OPEC members don’t seem to be on better terms.

According to Reuters, Saudi Arabia plans to supply 12.3 million barrels per day in April — a massive increase over its current production level of 9.7 million barrels per day. Russian oil minister Alexander Novak initially said he would not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June. His tone changed slightly on Tuesday, however, with suggestions that the nation could raise its oil production by up to 300,000 barrels per day in the short term — something a few market analysts have claimed was its plan all along.

It’s probably not the best time for OPEC to try and tear itself apart (though that hasn’t stopped it in the past). China, the world’s largest oil importer, is currently hamstrung by the coronavirus. Other regions may follow shortly. Saudi Arabia seems to be attempting to grab market share but with demand so low, it’s a real gamble. Russia and U.S. shale producers are in a better position to weather the storm. Meanwhile, analysts are concerned the Arabian kingdom couldn’t possibly sustain the price cuts and increased output for any significant length of time without hurting itself.

While this could have long-term implications for the oil industry, it’s also likely to drive down gas prices though the spring. National averages (in the U.S.) are around $2.38 per gallon and dropping during a period where prices normally ramp up to meet higher summer demand. Patrick DeHaan, head of petroleum analysis at GasBuddy, expects per-gallon prices to fall below the two-dollar threshold by April if trends persist.

The International Energy Agency (IEA) is likewise concerned that the coronavirus could recreate what happened in 2016 when we had our last major global oil surplus. Bad for the world economy, but fantastic for your back account, as gas prices were similarly low back then. Of course, there are heaps of uncertainty in the market with varying assumptions as to how bad the pandemic will actually get. Many see it as a minor hurdle that will primarily impact China while others are convinced it will be much worse than anticipated. Most are simply shrugging their shoulders as they watch the market.

“The situation remains fluid, creating an extraordinary degree of uncertainty over what the full global impact of the virus will be,” the IEA reported this week. “In the IEA’s central base case, demand this year drops for the first time since 2009 because of the deep contraction in oil consumption in China, and major disruptions to global travel and trade.”

[Image: Gumpanat/Shutterstock]

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  • Namesakeone Namesakeone on Mar 11, 2020

    Gasoline prices are below $2.00 a gallon in Metro Detroit, for the first time in a long time. I'm surprised President Trump hasn't yet (in a tweet) tried to take credit for that, as he has for pretty much everything that's happened (except for those for which he tried to deflect blame).

  • Jeff S Jeff S on Mar 11, 2020

    No on anymore ethanol subsidies. Just what we need increase ethanol content and ruin the engines in our vehicles.

  • Tassos I have driven exclusively manuals in my own cars for the first 30-40 years of my driving history. They were usually very affordable, fuel efficient simple vehicles with front wheel drive. Their manuals sucked (in the case of a 1983 GM vehicle I bought new) or were perfect (in my two 5-sp manual Hondas).After 2005, I started driving excellent 5 and 7 speed automatics in my own cars, which were NOT available in the US market with manuals.With today's outstanding automatics, which are also MORE, not LESS, fuel efficient than any manual, your question becomes MEANINGLESS.Because NO CAR "needs" a manual.Only some DRIVERS "WANT", NOT "NEED", a manual.Let us use language PRECISELY.
  • 3SpeedAutomatic And this too shall pass.....Ford went thru this when the model T was introduced. It took the moving assembly line to make real money. As time progressed, it got refined, eventually moving to the Model A. Same kind of hiccups with fuel injection, 4 speed automatic, Firestone tires, dashboards with no radio knobs, etc, etc, etc. Same thing with EVs. Yep, a fire or two in the parking lot, espresso time at the charging stations, other issues yet to be encountered, just give it time. 🚗🚗🚗
  • Art Vandelay 2025 Camaro and Challenger
  • Mike Beranek Any car whose engine makes less than 300 ft-lbs of torque.
  • Malcolm Mini temporarily halted manual transmission production but brought it back as it was a surprisingly good seller. The downside is that they should have made awd standard with the manual instead of nixing it. Ford said recently that 4dr were 7% manual take rate and I think the two door was 15%.