The structure behind the deal that pressed the Organization of the Petroleum Exporting Countries (OPEC) to increase production is why oil prices climbed in response to the news, says Liberty Oilfield Services Chairman and CEO Chris Wright.
“Each country can only pro-rata increase their production and the majority of them can’t increase their production at all,” Wright said during an interview on “Countdown to the Closing Bell.”
On Friday, the 14 member nations of OPEC agreed to raise crude oil production by up to 1 million barrels per day (bpd) from next month. Traders were left guessing how much additional oil OPEC targets to pump. OPEC reportedly expects to boost production by 600,000 barrels per day.
Crude prices surged 4.6%, their biggest gain since November 2016.
Although higher prices are better for the oil industry, Wright says there must be a balance to prevent a dramatic spike in oil prices.
“I think there is a risk, a non-trivial risk, of oil prices really spiking in the next twelve months,” he said. “I think Saudi [Arabia] wants to prevent that. I think for our industry it’s good to prevent that.”
U.S. gas prices have jumped over the past year. The average year-over-year price went from $2.28 to $2.86 a gallon for regular gas.
Wright suspects a slight spike in gas prices, but says motorists are still paying much less than they were four to six years ago.
“Gasoline prices are higher today than they were a year ago, but they were quite low a year ago,” he said.