U.S. fills in on oil where OPEC refuses to go

By Robert Burgess on 5/22/2019
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Photo: U.S. President Donald Trump.

NEW YORK (Bloomberg Opinion) -- President Donald Trump has from time to time lobbed tweets toward OPEC, imploring it to open the spigots and boost supply to lower the price of oil. The cartel has largely ignored the pleas, but U.S. producers seem to have responded in one of the few positive developments for the economy and markets.

West Texas Intermediate crude futures tumbled as much as 3.11% in their biggest decline since February after the U.S. Energy Department said weekly American crude inventories swelled to the highest in almost two years. The report rekindled talk of a glut beginning to form, which helped send prices tumbling below $45/bbl at the end of last year.

Though at a low of about $61 on Wednesday, the glut would most likely have to get much bigger before oil prices fell back to those levels. Nevertheless, any declines are a welcome development when concern is rising that America’s economy might not be able to shrug off the e scalating trade war with China or the worldwide economic slowdown. After all, as recently as October oil had broken through the $75-a-barrel level and strategists were talking about $100 being reached before too long. That would be devastating for the U.S. and global economy, especially with the Organization for Economic Cooperation and Development — which had already made big cuts to its global economic projections in March — doing so again on Tuesday, trimming its 2019 forecast to 3.2% from 3.3%.

Where oil goes from here may depend on the production agreement between OPEC and Russia. While they have managed to push crude prices higher, production cuts are weighing on Russia’s economy, which expanded by just 0.5% in the first quarter, below all 14 estimates in a Bloomberg survey.  There is now speculation that the President Vladimir Putin of Russia may not agree to extend the deal when it expires next month, according to Bloomberg News’s Olga Tanas.

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