Russia and Saudi Arabia have opened the taps, pumping an extra 1 million barrels a day of oil, and the two countries are making a big show of saying that they could do even more.
But the oil market doesn’t seem to care and oil prices keep climbing. As of 11:30 a.m. New York time U.S. benchmark West Texas Intermediate was up another 0.53% to $75.13. International benchmark Brent crude was up even more, 0.90%, to $85.56 a barrel. It’s the jump in Brent to more than $85 a barrel that is sending up warning flags. The move from $80 a barrel, which was once seen as the top of the range for 2018, to a breach of $85 a barrel has happened very, very rapidly. And that suggests that oil prices could be headed for one of those spikes where prices soar out of control.
The situation confronts oil producers in OPEC and Russia with a huge problem. Increasing production even more–to the degree that’s possible–to keep oil prices under control now creates a risk of a glut and a price plunge in 2019 if the more optimistic projections for when new pipeline capacity in the Permian Basin will lead to a resurgence of growth in U.S. oil exports and if projections of a slowdown in oil demand in the developing economies turn out to be accurate.
In September Russia pumped record volumes of crude oil and Saudi Arabia has said it will raise production in October to 10.7 million barrels a days–that’s near a record. And then raise production even higher in November, the Saudis said today. Russia also reported today that it could raise production by another 200,000 to 300,000 a day in coming months.
And yet, oil prices didn’t tumble.
This certainly suggests that the fear of supply disruptions among oil traders and oil customers outweighs more concrete promises of increased production.