Crude oil prices experienced a notable decline on Wednesday, reversing gains from recent days driven by supply concerns. These concerns stem largely from ongoing US efforts to restrict Iranian oil exports, particularly to China.
Despite previous administrations' pledges to increase domestic oil production to combat inflation, the US has struggled to significantly impact global prices. Consequently, the current administration is pursuing a strategy of encouraging increased production from other sources. This includes urging OPEC+ nations to boost output and facilitating oil supply from the Kurdish region of Iraq.
Furthermore, the US is working to streamline domestic oil production by removing regulatory obstacles. While these measures have yet to translate into immediate price reductions at the pump, they are expected to exert downward pressure on oil prices in the long term.
As of 17:00 GMT on Wednesday, West Texas Intermediate (WTI) crude was priced at $68.79 per barrel, and Brent crude at $72.81. Liquefied natural gas (LNG) prices have also decreased, following a doubling from what it was in the last quarter of 2024. The US, currently the world's largest oil producer, could further drive prices down with increased domestic output; it expects the shale oil producers to be more active in the coming weeks with higher production targets.
Simultaneously, there are indications of a potential resolution to the war in Ukraine, with US involvement. A successful settlement, as hoped by the President Trump, could potentially reintegrate Russian oil and gas into global markets, contributing to lower prices and reduced inflation.
However, a significant drop in oil prices below $60 per barrel would pose substantial revenue challenges for oil-producing nations, reminiscent of the 2012 downturn.
Saudi Arabia, for example, is currently operating near its breakeven price. Further price declines would strain the Kingdom's fiscal stability, potentially limiting its ability to manipulate market prices through production cuts. Historically, production cuts within OPEC+ have faced internal resistance due to revenue losses among member states.
The receding winter in the Northern Hemisphere, meanwhile, will likely lead to decreased natural gas demand. Given the relatively warmer temperatures typical of February, a surge in prices is not anticipated. This suggests fuel prices will remain at levels conducive to sustained global economic growth.
