Saudi Arabia plans to increase production to 10 million barrels per day, the highest level in 30 years, according to a Saudi Arabian newspaper.
NEW YORK — Saudi Arabia is still the boss when it comes to oil.
The world’s biggest oil exporter plans to increase production to 10 million barrels per day, the highest level in 30 years, according to a Saudi Arabian newspaper. Analysts see this as a bold step by the Saudis to reassert their dominance over OPEC after the 12-member group this week denied its request to increase production.
“They’re reminding everyone who the sheriff is in town,” independent analyst Jim Ritterbusch said.
Oil prices sank 2.6 percent Friday. Benchmark West Texas Intermediate crude for July delivery lost $2.64 to settle at $99.29 per barrel on the New York Mercantile Exchange. That erased most of the gains that followed OPEC’s meeting Wednesday.
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If Saudi Arabia follows through, the country will increase production 13 percent from May. This will add another 1.14 million barrels per day to the market, helping to close a shortfall in supply. OPEC says world demand will exceed supply by 1.45 million barrels per day in the third quarter. The U.S. Energy Information Administration puts the shortfall at 1.81 million barrels per day.
The last time Saudi Arabia produced that much oil was August 1981, according to the Energy Information Administration.
The Saudis have maintained that oil prices are too high, even after a recent decline. At the end of April, oil was up 25 percent for the year and U.S. gasoline prices were up 28 percent, near an average of $4 per gallon.
Americans have cut back on driving to compensate, according to industry surveys. But gas is still up 21 percent since January, at $3.72 ($3.91 in Seattle, AAA reported Friday), and experts warn the economy will struggle to grow as long as consumers are paying high pump prices.
More than anything, Saudi Arabia wants to avoid another price crash like the nearly 70 percent plunge that occurred in the second half of 2008. Back then, demand fell off a cliff when oil rose to nearly $150 per barrel. This week, Saudi oil minister Ali Naimi pushed for higher production among OPEC members. But Iran and several other countries disagreed, delivering Saudi Arabia a very public rebuke.
Friday’s report in al-Hayat newspaper gave investors a glimpse at how the Saudis will respond.
“They’re going to unilaterally decide for themselves when to supply the market,” analyst Andrew Lipow said.
The quick end to Wednesday’s contentious meeting in Vienna, Austria, had some proclaiming the beginning of the end for the 12-nation group. But others pointed out that most OPEC countries already are producing above their quotas.
Some fence-mending might be in order, but OPEC isn’t going away, said Oppenheimer & Co. analyst Fadel Gheit. An organization that stayed intact during the Iran-Iraq War and the Iraqi invasion of Kuwait certainly can make it through this, Gheit said.
“Every time I write them off, they come back,” he said. “There’s no love lost between these guys, don’t get me wrong, but they’ll stick together.”