Oil prices slid further Monday after OPEC+ announced another major increase in oil production over the weekend. The alliance of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries reported Saturday that they would boost output by 411,000 barrels a day in June, the same amount it committed to this month.
U.S. crude closed at US$57.13 a barrel, Brent crude at US$60.23. Oil prices are down roughly 20% this year.
Art Woo, senior economist and director, economics at BMO says there are two motivating factors behind the OPEC+ decision — a desire to punish Kazakhstan, Iraq and the United Arab Emirates, who have shot past their quotas recently, and a perceived need to placate U.S. President Donald Trump who is promising Americans more affordable oil and gas prices.
“President Trump has pretty much stated his desire for lower crude oil prices as a way to get gasoline prices down,” Woo said. “Prices going down helps get American inflation down. And that could prompt the Federal Reserve to also bring its policy rate down.”
The Saudis and others in the OPEC+ alliance depend on the U.S. for security.
“That is definitely a factor,” Woo said. “The U.S. has military bases scattered throughout the region. Trump’s stated desire for lower prices cannot be underestimated in terms of how it’s impacting decision making.”
Oil prices have been trending downward much of this year as a result of Trump’s global trade war. “The oil market is on tenterhooks,” Woo wrote in a note to investors on Friday. “The new reality for the oil market is that President Trump has, for all intents and purposes, become an unofficial member of the OPEC+ cartel. The implication of this is that crude oil prices will remain under pressure for the foreseeable future,” Woo wrote.
Following the OPEC+ weekend announcement, U.S. benchmark crude oil fell as much as 4% Sunday night before moderating.
Many producers can no longer turn a profit once oil falls below US$60.
— with files from The Associated Press