Oil prices fall after Saudi Arabia seeks to up output
WASHINGTON — Oil prices fell as much as $1 per barrel Friday after Saudi Arabia said it will push OPEC to raise its daily production quota by 2 million barrels, or 8.5 percent, in order to calm jittery energy markets and protect global economic growth.
Saudi oil minister Ali Naimi, who had called for a smaller production increase just two weeks ago, said the new target was decided upon after reviewing updated projections for supply and demand. Naimi also announced that the Saudis have agreed to pump an additional 500,000 barrels of crude per day, beginning in June.
Analysts said the Saudi plan would have little immediate effect on retail gasoline prices in the United States, where motorists are paying more than $2 a gallon, on average.
“It will take 45 days for the additional crude to make its way to the U.S. and by then it’s mid July and the gasoline season is already over,” said Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York.
However, “the markets have to respect that the Saudis are trying to make a stand to prevent the prices from rising further,” Bentz said.
Citing concerns about the negative impact the high price of oil could have on the global economy, particularly developing nations, the world’s largest petroleum producer said Friday that it intends to propose the higher output level on Saturday, when several members of the Organization of Petroleum Exporting Countries gather informally at an industry conference in Amsterdam.
The news sent energy futures tumbling.
The price of light crude for July delivery on the New York Mercantile Exchange dropped as low as $39.65 per barrel on Friday, before settling at $39.93, a decline of 87 cents. Since hitting an all-time high of $41.85 on Monday, crude has fallen nearly $2 or 5 percent amid rising expectations OPEC will raise production. June unleaded gasoline was down 3.34 cents per gallon at $1.4168 on Friday.
In London, Brent crude settled at $36.51, down 75 cents on the International Petroleum Exchange.
The Saudi Oil Ministry said in a statement attributed to Naimi that the country had already pledged to increase its production to around 9 million barrels per day as of June 1. The Saudi government is currently believed to be producing 8.4-8.6 million barrels a day.
The statement, issued in Amsterdam Friday morning, also said that “recent revisions in oil demand and supply projections for the coming months point to an increase in the required production from OPEC by an excess of 2.0 million barrels per day.”
The cartel’s official production quota is at 23.5 million barrels per day, but analysts believe OPEC members are producing, or “cheating,” in excess of 2.3 million barrels a day above their current quota.