Saudi Arabia could cut its crude oil output by as much as 1 million barrels a day, said Saudi energy minister Khalid al-Falih on Monday. The announcement came as members of the Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries this weekend suggested a production cut, after oil prices unexpectedly tumbled by nearly $15 per barrel over roughly the past month.
Demand hasn’t kept up with expectations thanks to slower economic growth in many parts of the world, and the expected impact of Iranian sanctions was muted due to last-minute waivers granted by President Donald Trump to several countries that buy Iranian oil.
“My sense is we may have seen the bottoms for crude or something very close to it,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “We’re going to see higher numbers — maybe not as high as early October — but we’ll see some higher numbers,” he said.
Energy market experts suggest that the actual size of any cut announced next month could wind up being lower than a million barrels, since OPEC will need the cooperation of non-member Russia, which has expressed a reluctance to drive oil prices higher.
“If Russia says, ‘We’re in with OPEC,’ that’s the key to holding it,” said John Hall, chairman of Alfa Energy, a U.K.-based consulting company. “Russia isn’t too keen on high oil prices [and] it doesn’t particularly want to give the U.S. shale industry a boost.”
Russian energy minister Alexander Novak expressed a wait-and-see demeanor over the weekend, according to CNBC. “Right now we shouldn't be making any hasty decisions. We need to look at the situation very carefully to see how it will develop so that we don't end up changing our course by 180 degrees every month,” he said on Sunday.
The good news for American drivers, though, is that the low gasoline prices they have been enjoying lately shouldn’t be impacted in the short term, Kloza said. “It’s not going to slow down these gas price decreases between now and Thanksgiving,” he told NBC News.
With Saudi Arabia’s ability to unilaterally influence global prices receding thanks to rising Russian and American oil production, a Saudi think tank recently published a report looking at an oil market without OPEC.
Russian support for Saudi Arabia’s OPEC goals is a key element keeping the cartel alive, Hall said. “I think if they fell out with Russia, the whole OPEC thing would really start to fall apart and it really wouldn’t have the credibility or the clout it currently has,” he said.
“When you start looking at the bigger picture there’s such a lot going on there,” Hall said. In addition to economic considerations, geopolitical tensions over American foreign policy pertaining to Iran, Israel, and the culpability of Saudi Arabia in the killing of journalist Jamal Khashoggi also factor into the balancing act.
Floating the idea of a global oil market untethered by a central governing body could be viewed as a scare tactic by a kingdom eager to reassert its relevance in the market. “It’s maybe a warning,” Hall said. “If there wasn’t someone controlling the price to some extent, you’d have a free for all… Life without OPEC would present more problems than life with OPEC.”