Pulse Price Report: OPEC Deal Aims to Boost Prices

Leaders from the Organization of Petroleum Exporting Countries (OPEC) are trying to strike a new deal to help boost oil prices after negotiations fell apart in 2016.

After a small rebound from historically low oil prices in 2016, the price per barrel has struggled to breach the $50 mark, less than half of what it was in 2014. The low prices are squeezing profit margins of the 13 OPEC nations, most of which are located in the Middle East.

Prices have been kept low by increasing production. In 2016, OPEC leaders attempted to strike a deal to cut production to decrease growing oil stockpiles, but some nations refused and the deal fell through. As oil is the primary export for many of these countries, convincing them to stop production is unlikely. It would be like asking Door County restaurants to reduce their hours on the Fourth of July so demand for all restaurants goes up.

But OPEC members are trying again and this time they are finding some success. About half of the nations who agreed to proposed production cuts in January have followed through and OPEC nations have decreased production by more than their target.

Now, they are bringing Russia, a non-OPEC nation, into the fold. A deal between Saudi Arabia and Russia will increase the length of time for production cuts by about three months.

Though OPEC has cut production, increased production elsewhere in the world is making up for those cuts, leaving stockpiles at near-record highs and holding prices down. The Saudi-Russia agreement aims to truly bring those stockpiles down and they hope some other nations join in.

But the move risks other oil producers, such as the United States, capturing that abandoned market share and holding prices down. OPEC nations may find their production cuts have no effect on prices at all, like going on strike only to see your job filled by someone else.

The United States could very well be that new employee, leaving OPEC nations running on fumes.

Crop prices (May 16)

Rio Creek Feed Mill – Algoma

Fox River Valley Ethanol – Green Bay

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $2.34

United States one year ago: $2.22

Wisconsin: $2.31

Wisconsin one year ago: $2.22

Northern Door: $2.33

Sturgeon Bay: $2.34

Other Commodities

Gold: $1,237.10/troy ounce

Silver: $16.74/troy ounce

Oil: $48.85/barrel

Sources: aaa.com, agweb.com, gasbuddy.com, money.cnn.com, Bloomberg Markets