Oil Prices in Flux: Higher Gas Prices on the Horizon

Oil producers across the globe are crossing their fingers hoping that prices per barrel will rise, as consumers across the globe focus their hope on lower or at least steady prices. After all time highs in 2008 where the average price of a gallon of gasoline in the United States was at $4.11, consumers have enjoyed considerably lower prices during recent years.

Currently, the national average cost for a gallon of gasoline is up to $2.81, that’s up almost half a dollar from a year ago when prices were only $2.35. Analysts are predicting prices will continue to rise through the summer, thanks to a variety of factors, some of them very political.

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Trump’s Iran Decision

Not least among the issues that will affect the price at the pump will be whether or not President Trump decides to pull the United States out of the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal. Candidate Trump campaigned on the idea that the deal wasn’t in the best interests of the American people and has repeatedly issued warnings threatening to pull the US from the agreement. Various world leaders including those from the European Union have pleaded with Trump to remain in the agreement, although Israeli Prime Minister Netanyahu has been a vocal advocate for the US to abandon the deal.

The decision will ultimately be made by the president with the help of his team of advisors. If Trump does decide to pull out of the deal, it would reimpose restrictions on oil shipments from some members of the Organization of Petroleum Exporting Countries (OPEC). Those restrictions could remove up to a million barrels of oil per day from the market. With a decrease in the supply of oil, prices would naturally rise.

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Venezuela Instability

Iran isn’t the only country that’s having a major effect on the oil market right now. Venezuela has been in uncertain political territory for a while now, and a presidential election that socialist leader Nicolas Maduro has scheduled for May 20 could be the tipping point.

If the United States determines that the election wasn’t democratic, the United States may impose sanctions on the OPEC member nation. Venezuela’s oil industry is already hurting, with a crumbling infrastructure and political unrest making borrowing difficult for oil producers. Already Venezuela’s oil output is down about a million barrels a day compared to 2015 numbers, and that may fall even further.

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Production Cuts

At the beginning of 2017, both OPEC and non-OPEC producers, led by Russia, agreed to cut oil production in an effort to diminish stockpiles around the globe and push the price of oil past the $60 per barrel mark. Those cuts were set to expire, but have been extended until the end of 2018 in an effort to push oil prices higher.

Saudi Arabia is championing a call for even more production cuts, aiming for a price near $88 per barrel in an effort to balance the kingdom’s budget and bring more modernization to the country. These production cuts are significant because OPEC and Russia combined produce over 40 percent of global oil. The cuts also mark the first time that Russia has fully entered a deal with OPEC. The deal’s success is in some jeopardy though, as oil prices over $60 per barrel will spur US Domestic growth, which could drive oil prices back down again.

“If producers in the U.S. increase their rig count over the next few months due to higher prices then I expect another price collapse by the end of 2018,” said Scott Sheffield, executive chairman of Pioneer Natural Resources Co (PXD.N), one of the largest producers in the Permian Basin of Texas and New Mexico, the largest U.S. oilfield, told Reuters.

Regardless of the political outcome, it’s clear that US consumers will be paying higher prices at the pump this summer. Prices are expected to increase at least 14 percent, to $2.74 per gallon, according to estimates from the Federal Government.

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