Oil Prices Are Going Up... And So Is Your Gasoline Bill
The price of the U.S. benchmark oil, WTI, reached its highest level in three years on Thursday – nearly $69 per barrel – before retreating slightly. The European benchmark, Brent, rose to over $73 per barrel. These higher prices are largely the result of a draw down in oil stocks, meaning there is less oil in storage globally. For several years, the oil market has experienced a substantial oil glut, and this signifies a change.
Both the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) have made statements to the effect that the glut is ending. This means less supply, and therefore higher prices. Oil prices have also been pushed higher by geopolitical factors such as heightened tensions in Syria, the threat of new sanctions on Iran and unrest in Venezuelan oil fields.
This means that Americans will be seeing higher gasoline prices this summer. In fact, many commuters are already noticing that gas prices have been slowly climbing. Gasoline prices usually trend upwards at this time of year anyways, because refineries often undergo planned maintenance and transition to produce summer blends of gasoline. Prices tend to remain elevated over the summer because summer gasoline blends are more expensive to produce and because demand for gasoline is higher. The higher price of crude oil this year compared to the last three years means gasoline prices this summer should be higher still.
There are two major decisions in the next few months that will likely set the tone for oil markets for the rest of 2018 and into 2019. The first is President Trump’s May 12 decision about recertifying the Iran nuclear deal. The President may, at that point, decide to re-impose sanctions on Iran. There are some indications that he is likely to do so, though the decision has not been made. It he does, prices should rise further.
The second major decision will be made on June 20, when OPEC meets in Vienna. OPEC, along with its non-OPEC partners, will decide whether to continue production cuts through 2019 or to end the cuts at the conclusion of 2018. There are indications that even though the global oil glut seems to be mitigated, OPEC wants to extend its deal into 2019. This is likely to keep oil prices elevated, at least until oil producers in the United States and elsewhere increase production.
Ellen R. Wald, Ph.D. is a historian & consultant on geopolitics & energy. She is a Non-Resident Scholar at the Arabia Foundation and the author of Saudi, Inc.