Oil prices set to rise after recent cooling-off
Emma Loop April 06, 05:22 PM April 06, 05:22 PM Video Embed
As people fill up their tanks for road trips in the warmer months, they may find gas prices ticking upward again.
In a surprise move, a group of oil-rich nations led by Saudi Arabia recently announced they would cut production by 1.16 million barrels per day, leading to an immediate jump in oil prices as global markets braced for shorter supply.
OIL PRICES JUMP BY MOST IN NEARLY A YEAR ON SURPRISE OPEC+ PRODUCTION CUT
That group, known as the Organization of the Petroleum Exporting Countries, said on April 2 that the reductions would start in May and continue until the end of the year. Saudi Arabia will cut production by 500,000 barrels per day, the Saudi Ministry of Energy said, adding that it was “a precautionary measure aimed at supporting the stability of the oil market.”
Russia, meanwhile, has announced it will cut production by 500,000 barrels per day until the end of the year as well.
“OPEC+ was expected to do nothing but instead they are slashing more than 1 million [barrels per day] of output,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, tweeted after the announcement. Kloza added that he expected crude oil prices to rise by $3 to $5 per barrel and for gas and diesel to jump 8 cents to 12 cents per gallon.
Patrick De Haan, head of petroleum analysis at GasBuddy, made a similar prediction on Twitter following the news. “I would largely expect oil prices to rise $3-$6 per barrel as the market prices this in, but again, to the motorist filling up, the initial effect will be limited to a ballpark of 5-15c/gal,” he said.
Combined with the approaching switch to more expensive summer blend fuel that U.S. retailers must sell in the warmer months to help reduce emissions, the production cuts could mean that gas prices surpass $4 per gallon once again, some say.
“We should expect it to continue ticking higher here in the next month or two, perhaps heading toward that $4 a gallon level there. So in summary, higher prices basically,” Matt Smith, lead oil analyst at Kpler, told Yahoo.
“As we know, with prices at the pump — they shoot up like a rocket but float lower like a feather. And so this is going to provide a bump at the pump essentially,” Smith said.
The price jumps could come just as the busy driving season hits and at a time when many people are already feeling the financial effects of dealing with high inflation over the past year. Growing energy prices could also help sustain inflation on a range of goods and services, adding pressure to the Federal Reserve as it continues to try to rein in prices.
Already, gas prices have been on the rise in recent weeks. As of April 5, the national average for regular unleaded gas was around $3.53 per gallon, according to AAA. That’s nearly 7 cents higher than the week prior and around 13 cents higher than the same time last month — but still lower than the $4.176 per gallon average from one year ago.
Kloza said the change to summer blend fuel would take place in Northeastern states in the coming weeks and “will add about 20cts/gal to gas prices. Other areas of the country are already using the summer blend that arrives with the summer wind.”
Still, he and other experts predict fuel prices won’t reach the record peaks set last spring. In June, the nationwide average price for regular unleaded gas hit $5.016 per gallon, an all-time high, according to AAA. The soaring prices followed Russia’s invasion of Ukraine and the sanctions Western countries subsequently imposed on its energy exports, disrupting the global oil supply.
“Gasoline and diesel prices are expected to rise 12 to 15 cents per gallon,” Andy Lipow of Lipow Oil Associates told Yahoo. “I expect prices to rise to my previous Feb. 20 price forecast of $3.65 as we head into the summer driving season. I don’t expect a repeat of last summer’s price surge to $5 per gallon.”
Kloza agreed that prices would remain lower than in 2022. “We’ll still pay $1.25-$1.50/gal less than 2022 second quarter numbers for the most part, but it might have been $1.50-$1.60/gal less before the cartel’s move,” he tweeted.
The unexpected decision from OPEC and some of its allies, known as OPEC+, could help generate more profits for Russia as its attack on Ukraine wears on and underscores Saudi Arabia’s focus on funding domestic projects despite possible blowback from the West, experts say.
Kristian Coates Ulrichsen, a Middle East fellow at Rice University’s Baker Institute for Public Policy, said Saudi Arabia is looking to keep oil prices elevated to fund Crown Prince Mohammed bin Salman’s Vision 2030 plan, the Associated Press reported. That plan aims to transform the country’s oil-dependent economy and conservative culture and includes several so-called “gigaprojects” — including the construction of new, advanced cities.
“This domestic interest takes precedence in Saudi decision-making over relationships with international partners and is likely to remain a point of friction in U.S.-Saudi relations for the foreseeable future, even without taking into account the Russian dimension,” Ulrichsen said.
Helima Croft, head of global commodity strategy and Middle East and North Africa research at RBC Capital Markets, told the New York Times that she viewed OPEC’s move as “just one more indication that the Saudi leadership is moving its oil production decisions with a clear eye to their own economic self-interests.”
The latest OPEC cut follows an even larger one announced in October, just before the U.S. midterm elections, that prompted sharp criticism from the United States as President Joe Biden’s administration sought to tame fuel prices. The White House had lobbied OPEC member states heavily against slashing output but was unsuccessful, and the overseas cartel approved a cut of 2 million barrels per day.
Tension has been brewing in the U.S.-Saudi alliance over the last five years, beginning in part with Saudi Arabia’s brutal murder of Washington Post journalist Jamal Khashoggi in 2018. Biden campaigned on a promise to make the oil-rich nation a “pariah” but has taken a less severe tone since fuel prices surged.
Still, Biden responded angrily to the October cut announcement, vowing that there would be “consequences” for Saudi Arabia, while some Democratic lawmakers in Congress pushed to pull military support for the Gulf kingdom.
“The president is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” national security adviser Jake Sullivan and then-Director of the National Economic Council Brian Deese said in an Oct. 5 statement. “At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.”
But when U.S. gas prices failed to shoot up, the White House didn’t follow through on Biden’s threats. More recently, the administration has expressed less concern at the oil cartel’s latest output cut, with Biden saying, “It’s not going to be as bad as you think.”
The administration got a “heads-up” about OPEC’s decision, according to John Kirby, a spokesman for the National Security Council. “We don’t think that the production cuts are advisable at this moment, given the market uncertainty. And we made that clear,” Kirby added. “But we also don’t have a seat at that table.”
White House press secretary Karine Jean-Pierre also downplayed the possible effects of the cuts.
“Analysts had said last year that prices were going to go up, and that did not happen,” she said at a press briefing on April 4. “If anything, in fact, gasoline prices went down by a buck fifty at — when it was at its peak this past summer. A lot of that is because of the actions that this president took.”
“And just to give you a little bit more, the price of oil has been trading around 80 bucks a barrel over the past month,” she added. “They were around $110, $120 a barrel last year.”
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Some industry experts are also unsure whether the latest cut will be all that damaging in the long run, noting that the cut announced in October ended up being significantly fewer than 2 million barrels per day.
“This is just an announcement,” AAA spokesman Andrew Grossman told CBS News. “Will the size of the cut really be a million [barrels per day] plus, or will it be something less? That’s entirely possible. They have a month to figure out what they really want to do.”
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