Oil prices are tanking as Russia and Saudi Arabia rethink output caps
Oil prices dropped by about $2 a barrel on Friday, falling further from recent 3½-year highs and putting the futures on pace for a weekly loss.
Russian Energy Minister Alexander Novak said a group of producer nations could soon begin easing production limits aimed at balancing the market.
Novak met with his Saudi counterpart to discuss the agreement in light of declining Venezuelan output and renewed U.S. sanctions on Iran.
Oil prices fell sharply on Friday after influential energy ministers said a group of two dozen producer nations could soon begin easing the production limits they put in place last year to drain a global crude glut.
Russian Energy Minister Alexander Novak met with his Saudi counterpart, Khalid Falih, in St. Petersburg to discuss the deal, which has aimed to keep 1.8 million barrels a day off the market since January 2017. The parties are now considering a gradual exit to that deal to compensate for falling production in crisis-stricken Venezuela and anticipated export disruption from Iran, which faces renewed U.S. sanctions.
"The moment is coming when we should consider assessing ways to exit the deal very seriously and gradually ease quotas on output cuts," Novak said in televised comments, according to Reuters.
U.S. West Texas Intermediate crude prices dropped below $69 a barrel, slipping further from this week's peak of $72.83, its highest since November 2014. They were down $2, or 2.8 percent, at $68.71 at 9:56 a.m. ET.
Meanwhile, Brent crude fell $1.81 or 2.3 percent, to $76.98. The international benchmark for oil prices last week hit a 3½-year high of $80.50, also going back to November 2014.
Brent is down 2 percent this week, on track to break a six-week winning streak. U.S. crude is down more than 3 percent for the week.
The ministers are considering a supply increase of as much as 1 million barrels a day to cool the market, sources told Reuters. Falih is particularly concerned about the impact of oil prices above $80 a barrel on consumer nations like China and India, the news agency reported.
The move to potentially ease the production caps follows news reports that Saudi Arabia was roughly targeting $80 a barrel to support domestic initiatives. Those reports helped bolster crude prices within the last two months.
But it now appears that prices accelerated "too far, too fast," said Matt Smith, head of commodities research at shipping intelligence firm ClipperData.
"They've reached their target and it now seems as if they're pulling the levers to try to keep prices around this $80 mark," he said. "The $80 mark is not too hot, not too cold, but just right."
Oil prices struck new multi-year highs after President Donald Trump announced the United States would withdraw from a 2015 nuclear deal with Iran and restore punishing sanctions on the country, OPEC's third biggest producer. The administration's hawkish tone since then has raised concerns of substantial supply disruptions from Iran, despite efforts by the European Union to preserve the accord.
Meanwhile, output continues to decline in Venezuela, which re-elected President Nicolas Maduro this week, prompting fresh U.S. sanctions. Venezuela is mired in a devastating economic crisis that has hobbled its ability to tap its lifeblood oil reserves.
In the United States, output continues to rise toward the 11 million barrels-per-day, with U.S. drillers threatening to unseat Russia as the world's top producer. However, bottlenecks in the Permian basin, the nation's biggest shale oil producing region, mean U.S. drillers may fail to meet growing global demand for petroleum.
The pause in the oil price rally could be good news for drivers. The national average for regular gasoline in the United States has risen to nearly $3 a gallon, the highest level since 2014, prior to an historic oil price crash.
Watch: Here's what drives the price of oil
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