Oil May Drop To $40 If Deal By OPEC Deal Is Abandoned

Russia and the Organization of Petroleum Exporting Countries (OPEC) may choose to increase oil production due to more evidence showing that the global oil markets are continuing to be altered by US oil production. This announcement was made on Saturday by Russia’s Finance Minister, Anton Siluanov to Russia’s Tass News Agency.

If the deal put in place back in January of this year by OPEC+ members  is abandoned it would have a negative impact on US oil production because prices would be lowered.  This was the same tactic espoused back in 2014 when the Saudi’s produced more oil in an already flooded oil market.

Prices could drop to $40 per barrel or even less, Siluanov claims for at least a whole year, but he also does not know whether the OPEC nations would be happy with this happening. The deal put in place in January tried to remove 1.2 million barrels per day of oil from the market for six months followed by a review after this time.

Reduction of of the oil global supply has been successful with the OPEC+ deal in effect at the present time. This deal is the second in three years with geopolitical developments which has kept OPEC members Iran and Venezuela in check with reduced production which has raised the global oil prices to five month highs of 30 to 40 percent.

Depending on the supplier, crude oil prices have held around the $53+ to $71+ per barrel in spite of bearish news at the start of the week.

Whether or not Russia decides to keep its commitment to the OPEC+ deal, Saudi Arabia signals its commitment to remain steadfast. Two weeks ago, Khalid al-Falih, who is Saudi Arabia’s Energy Minister, said that the prospect of his country’s commitment to the OPEC+ production cuts was optimistic and also expected other oil producers to do the same and catch up soon.

The first OPEC+ deal was enacted in January of 2017 and it was successful and brought the Organization for Economic Cooperation and Development (OECD) oil inventory levels to a five year average which boosted oil prices that  had dropped below $30 per barrel back in January of 2016.

Should the Saudi Kingdom forego their deal with OPEC+ and increase oil production in order to fight for their market share alongside Russia (if Russia does) it would certainly put pressure on lowering oil prices particularly as the US continues with its oil production. Whether or not oil prices dip to a dismal $40 per barrel as Siluanov forewarns remains to be seen.