Conflicting reports last week that renewed anticipation of global oil production cuts. then quickly squelched it, left in doubt the prospects of crude prices that have plunged 70% the past 18 months and rocked the global economy. News that OPEC and Russia could meet in February to trim output pushed up West Texas Intermediate 8% until reports shot down the possibility, causing crude to give back much of the advance. Still, speculation of a deal left the U.S. benchmark up 4% the past two trading days at $33.62 a barrel, capping its second straight weekly gain.
Lee and other analysts say there’s too much bad blood among Saudi Arabia, Russia and other OPEC nations for a deal to be forged and not nearly enough financial benefit. With a slim-to-none chance of a pact to curb oil production, crude’s price is poised to hover near current levels or fall further before last year’s modest output cuts by U.S. and other producers have a bigger impact in the second half of 2016, analysts say. Lee expects oil prices to climb above $50 a barrel by late 2016.
That should leave gasoline below $2 a gallon until the U.S. summer driving season nudges it to about $2.40, says Tom Kloza, chief global analyst of the Oil Price Information Service. Crude’s plunge handed consumers a $100 billion windfall at the pump last year, but hammered business investment, oil company profits and stocks. Economists are starting to wonder if it’s a net benefit or drag for the economy. The price skid was set off by weak global demand and record production, fueled largely by massive U.S. shale output. Worldwide oil supplies exceed demand by about 1.5 million barrels a day.
Despite Saudi Arabia’s historic role as swing producer, it adamantly maintained output levels as oil prices sagged in summer 2014. The Saudis, analysts say, are weary of fellow OPEC members violating production-cut deals to hold market share and are determined to let prices tumble to drive higher-cost U,S. producers out of business. But oil’s recent slide below $30 intensified the pain for OPEC countries and Russia, which depend on oil revenue to finance their budgets, says Oppenheimer analyst Fadel Gheit. Russian news agency TASS reported Thursday the likelihood of a February meeting between OPEC and Russia was “very high.”But OPEC delegates told Bloomberg there were no plans to meet. Last year, Saudi Arabia proposed that global producers slice output 5%, a move that Gheit says would boost prices 50% to 100%. Yet Russia and Saudi Arabia are “archrivals” in oil and Mideast politics, Kloza says.