Is OPEC’s strategy of letting oil prices slip to hurt its rivals working?
In its monthly report on the market, the Organization of the Petroleum Exporting Countries said Monday that demand for a barrel of its crude oil is slated to rise.
OPEC no longer predicts demand for oil will decline by 300,000 barrels a day, according to The Wall Street Journal. Instead, the group says demand will be 29.2 million barrels per day, up about 100,000 barrels a day compared with last year.
The organization is also reporting that the U.S. oil supply will increase at a slower rate than previously forecasted: 130,000 fewer barrels per day than was originally expected for 2015. Meanwhile, oil consumption in the U.S. is slated to jump 1.17 million barrels a day to 92.32 million in total.
The price of oil has more than halved over the past six months, falling below $60 a barrel, and U.S. gas prices have fallen to their lowest levels in a decade.
In response to price declines, OPEC has usually cut production to prop up prices, the Journal notes. But last November OPEC, led by Saudi Arabia, decided not to cut output — a move seen as intended to inflict economic damage on producers of oil in the U.S., where production has been rising, the newspaper said.
The price of oil has indeed recovered somewhat in recent days following its six-month slide. U.S. crude futures rose for a third straight session up $1.17, or 2.3 percent, to $52.86 on Monday. During the day, it reached a session high of $53.99, according to Reuters.
Lower oil prices have led to greater demand from U.S. motorists, OPEC said in its report, noting that the lower price for a gallon of gas means motorists are getting on the road more often, and that’s driving up the price of oil: “Gasoline, in particular, remains a key driver behind the growth in U.S. oil demand, largely a result of lower oil prices,” OPEC said.
The price of oil could soon drop to $20 a barrel, the report said, noting that oil production in the U.S. is still rising. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran are trying to maintain their market share by cutting prices to Asia, the report added.