Oil prices fell on Monday afternoon to their lowest level of the year after the OPEC oil cartel and its allies affirmed plans to gradually increase crude production beginning in April.
Opening the taps in countries such as Saudi Arabia and Russia, which have voluntarily throttled supply to prop up prices, increases the risk that the world could soon find itself with more oil than it needs. The group said it would raise production by 2.2 million barrels a day, or around 2 percent of global demand, over many months.
That would be good news for consumers, who generally benefit when energy costs less, but squeeze the profits of oil producers and the countries and states where they operate.
U.S. oil prices settled at $68.37 a barrel on Monday, down 2 percent. At that price it’s generally profitable to drill new wells in the United States, which produces more oil than any other country by far. Many more wells are no longer profitable when oil sells for $60 a barrel or less.
OPEC Plus, the name used by the Organization of the Petroleum Exporting Countries and allies like Russia, has been saying since December that a group of eight countries would begin ramping up output in April. However, oil traders took those statements with a grain of salt because the cartel delayed similar plans several times last year, worried that supply would outpace demand and depress oil prices.
“The decision to move ahead with a gradual ratcheting up of output does not seem to be in response to stronger-than-expected demand for their barrels, but rather in response to increasing political pressure, especially from the Trump administration,” a Barclays analyst, Amarpreet Singh, wrote in a note to investors on Monday. The move by OPEC Plus, he said, came as a surprise.
President Trump campaigned on lowering energy prices by at least half, a target that economists have said is unrealistic. And in January, he said he would lean on Saudi Arabia and OPEC to lower the cost of oil.
“You got to bring it down, which, frankly, I’m surprised they didn’t do before the election,” he told the World Economic Forum.
The oil producers may adjust their plans based on market conditions, OPEC said in a statement. “This flexibility will allow the group to continue to support oil market stability.”
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