Oil Prices Fall As OPEC Impotence Worsens With Key Partner’s Reversal

Crude oil prices fell Thursday as Russia’s energy minister rejected a formalized partnership with OPEC, potentially weakening a tie-up meant to manage production and prop up prices.

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OPEC and Russia have been working together since the end of 2016, and they reached a deal earlier this month to cut production by 1.2 million barrels per day for the first half of 2019 after crude oil prices collapsed in October and November.

Moscow and OPEC’s de facto leader, Saudi Arabia, earlier had agreed to establish a more “institutionalized” partnership that would last beyond 2019, Russian Energy Minister Alexander Novak told reporters Thursday.

But with President Donald Trump’s criticism of OPEC and possible sanctions from the U.S., the idea is now off the table.

“There is a consensus that there will be no such organization,” he said. “That’s because it requires additional bureaucratic brouhaha in relation to financing, cartel, with the U.S. side.”

But he didn’t rule out continued cooperation with OPEC.

“This won’t be an organization, this is some mechanism of cooperation: to convene, to discuss, adopt some memorandums, joint resolutions,” he added.

U.S. crude oil prices fell 2.4% to $ 45.09 a barrel after soaring nearly 9% Wednesday. Brent crude oil prices tumbled 2.7% to $ 52.99 per barrel.

Exxon Mobil (XOM) shares fell 1.8% on the stock market today. Chevron (CVX) was off 1.1%, BP (BP) tumbled 2.8% and Royal Dutch Shell (RDSA) was down 1.6%.

Shale, Anti-Trust Bill Weigh On Crude Oil Prices

Congress previously had considered the No Oil Producing and Exporting Cartels (NOPEC) Act since 2000. The bill would criminalize action by any country to limit the production or distribution of oil, natural gas or petroleum products like gasoline.

The bill never passed, but lawmakers were seen reconsidering it if Russia formalized its partnership with OPEC.

Meanwhile, OPEC has been struggling to exert its will over crude oil prices. The shale boom has made the U.S. the top oil producer, eroding OPEC market share and forcing it to cooperate with nonmembers like Russia.

But even OPEC’s latest deal with Russia has failed to halt the rout in crude oil prices, and additional efforts to calm markets have had little effect.

Earlier this week, officials from Iraq, Kuwait and the United Arab Emirates joined Saudi Arabia’s call last week that OPEC should extend output curbs from a mid-2019 expiration to the end of next year.

U.S. shale producers are expected to continue pumping more oil next year, adding to OPEC’s woes.

The Energy Information Administration expects total U.S. production to average a record 12.06 million bpd in 2019, up from an estimated 11.88 million bpd at 2018’s end.

Shale companies have been finding new ways to pump more efficiently, allowing them to boost production even as oil prices fall. Diamondback Energy (FANG) expects to produce 30% more oil next year, though the drop in crude oil prices is curbing its drilling activity plans.

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