Taking to the Roadways Media mentions / OpEds

Low oil and gas prices have encouraged those in the US to drive more and do so in style. Meanwhile, OPEC (the Organization of the Petroleum Exporting Countries) and several non-OPEC (NOPEC) nations are efforting to increase those prices. Will they succeed?

Memorial Day signals the beginning of the summer driving season. This year, more people in the US (82 percent based upon one survey) expect to take road trips. More vehicle miles are expected to be driven than ever this year—39.3 millions miles, up a million from 2016. The current average price of gas is only $2.34 per gallon, up a mere penny from last year and far below the ten-year average of $3.15. Furthermore, US drivers are driving in larger and more luxurious vehicles. More light trucks (SUVs and crossovers) were sold last year than ever (17.5 million). Even US Range Rover sales hit a new record. All of this will, of course, lead to increased consumption.

Will such consumption reduce oil supplies thus making oil and gas more expensive? Not necessarily. Oil is a global commodity. For several years, producers have generated more oil than is used each day. In order to raise prices, OPEC and NOPEC met on Thursday in Vienna and agreed to the continuation of their production cuts which have been in effect all year (the cut equals 1.8 million barrels per day). To date, the action has only led to temporary price increase. Today, prices remain roughly close to where they were when the cuts began.

It remains to be seen if a continuation of the cuts, another nine months is what was approved, will reduce the excess supply and therefore raise prices, or if unexpected demand growth will continue.

What has occurred is that US oil shale producers and Canadian producers have made up for the OPEC/NOPEC cuts. Furthermore, President Donald Trump’s fiscal year 2018 budget (released in recent days) calls for the sale of half of the US Strategic Petroleum Reserve (SPR). If agreed to by Congress, which is expected in the next several months, the SPR sale would not only generate $16.5 billion over ten years, it would add another 95,000 barrels a day to oil supplies, thus helping to keep prices low.

Bottom line: While the OPEC/NOPEC agreement seeks to continue production cuts and increase prices, it is hard to see where any significant near-term rise will occur. Keep on driving!

 


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