What’s happening with oil prices?

The US, Saudi Arabia, and Russia may be coming to an agreement

Every automobile driver in the US knows that gas and oil prices are through the roof these days. A gallon of oil costs $67 today, compared to just $30 in 2014. Why is this the case, and what are countries doing to change that fact?

According to President Trump, the Organization of the Petroleum Exporting Countries (OPEC) is to blame, and he could be right. OPEC cut down on oil supply in early 2017 so they can charge higher prices. For example, Iran wants to invest more money into its struggling economy and oil industry, so it has raised prices for importers.

However, some members of OPEC plan on capitalizing on the struggling state of countries like Iran. Namely, Saudi Arabia and Russia – the OPEC leaders of oil supply – will ramp up production at lower prices and sell to big markets like China and India. Jason Bardoff of Columbia states,

Russian firms have long been pushing to produce more… They have invested heavily in new production capacity and see far more upside from additional production rather than higher prices.

Indeed, although Russia is allied with Iran and supports their nuclear deal, Russian oil companies will benefit if American sanctions work against Iran. That is, American sanctions will target Iranian oil exports, and if this significantly decreases their amount of exports, then the price will fall. Consequently, Russia can buy this oil and sell it to the US at a higher price – a very convenient loophole for the country.

Saudi Arabia officials have also agreed to boost oil production, which will drive the price down. This largely stems from Saudi Arabia’s mutual enemy in Iran – the Saudi government also largely opposes the Iran nuclear deal, so if America holds its sanctions, it will supply more oil.

However, the solution isn’t that simple. By sanctioning Venezuela and Iran, President Trump is creating the fate of oil prices. Analysts believe that sanctions will cause Iranian oil exports to fall between 200,000 and a million barrels per day. Thus, if Trump wants lower oil and gas prices, he may need to loosen these sanctions.

Additionally, the constant tweeting from President Trump about OPEC, bashing its members and practices, doesn’t help either. On Wednesday, the president tweeted,

Oil prices are too high, OPEC is at it again. Not good!

The angrier OPEC countries get, the less willing they will be to comply. Hence, if President Trump wants oil and gas prices to drop, he has to be careful about whose toes he steps on. Nevertheless, the collaboration of all countries is a positive sign not only for oil prices but for international relations in general.

 

Featured image via Pixabay/lalabell68

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