Get Yer Jerry Cans Out
Looking for an added dose of bad news, recently laid-off, pandemic-sheltering readers? Gas prices should be heading northward before long, now that Russia and OPEC member countries have reached a pact to curtail oil production, thus inflating the near-worthless value of a barrel of crude.
That means prices at the pumps won’t be quite as enjoyable in the coming weeks. Maybe it’s time to brave the outside world tonight and fill up that tank — and any other safe, sealable vessel you can get your hands on.
Sunday afternoon, the leaders of OPEC nations and other oil-producing countries, among them Russia, the U.S., Saudi Arabia, and Mexico, agreed to reduce production by 9.7 million barrels a day. That’s 10 percent of the world’s oil supply — as CNBC reports, the largest production cut in history.
Vastly reduced oil demand spurred by the ongoing coronavirus pandemic coincided with geopolitical jousting between Russia and Saudi Arabia last month, leading to continued excessive production at a time when consumers needed it the least. That sent the value of a barrel of crude plummeting to the lowest point in years. For the average citizen, it was the only positive thing to emerge from the grim month of March. The glut of oil won’t disappear overnight, nor will the pact between the 23 nations, called OPEC+, see the change go into effect in short order.
The near 10-million-per-day barrel reduction commences May 1st, lasting two months before an 8-million-barrel-per-day cut goes into effect until the end of the year. After that, 6 million barrels is the name of the game. That cut will last from January 1st, 2021 to April, 2022. The glut won’t be gone for a long time, but oil futures will surely rise on word of the pact. The signs outside your local gas stations will reflect the optimism (read: price inflation) that comes from a stabilized outlook.
The agreement could have seen signatures late last week, but Mexico stood firm on its initial refusal to cut production by 400,000 barrels per day. Under the new agreement, the country south of the Rio Grande will instead taper off by 100,00 barrels per day. Referring to Mexico’s pared-down contribution, President Donald Trump was quoted by CNBC as saying the U.S. would “pick up some of the slack.” U.S. oil production is already in decline.
The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!
— Donald J. Trump (@realDonaldTrump) April 12, 2020
Besides the near 10-million barrel cut, some nations have agreed to reduce their output beyond what’s in the agreement, potentially putting the actual oil cut somewhere between 15 and 20 million fewer barrels per day in May and June. Right now, Canada, whose crude fell below 4 dollars a barrel in recent weeks, hasn’t yet committed to a drop in production, as it’s not a federal matter.
Despite the historic deal, not every analyst feels that the number of barrels shed is enough, given what’s going on in the background. That said, no one disagrees that the move will help stabilize markets and keep oil producers afloat.
For the average consumer, and that group includes this writer, it may be time to get off their ass and make that long-avoided trip to the pumps. Sunday night is always a good time to fill up for cheap(er), anyway.
[Image: Nithid Memanee/Shutterstock]
Jthorner on Apr 13, 2020
I'm confused. If US companies talk to each other and make a deal to increase prices, that is illegal collusion under anti-trust laws. How then can a US President make a deal with other countries to raise the price of something everyone uses? I don't get it. (No, this concern isn't specific to the current President).
Jeff S on Apr 13, 2020
The President cannot make a deal with other countries to raise the price of a commodity, but a President can ask for cooperation in either reducing or increasing the supply of a commodity but that is not a deal. I doubt the President actually ask for a deal to decrease oil supply.
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