OPEC+ deal will boost oil production — but what will it mean for prices at the pump?
Gas prices have been increasing, just like summer temperatures.
Those prices are not likely to cool down before the season’s end, despite a freshly-announced deal for more oil production from the Organization of the Petroleum Exporting Countries and its allies, one expert says.
“I’m not expecting gas prices to drastically drop between now and Labor Day,” said Jeanette McGee, an AAA spokeswoman. Summer gas demands from people ready to see friends and family in this phase of the pandemic are still way too strong to change the current price dynamics, she said.
Earlier this month, the U.S. Energy Information Administration counted a record demand for gasoline of 10 million barrels a day, the AAA said.
As of Monday, Americans were paying $3.17 per gallon at the pump on average, according to AAA. That’s a 13-cent jump from Memorial Day Weekend, and a 98-cent jump from a year ago.
Earlier this month, the OPEC countries and their allies couldn’t come to an agreement on crude oil production amounts after they implemented production curbs earlier in the pandemic. By Sunday, they reached a deal to boost crude oil production by 400,000 barrels a day each month starting in August through the end of 2022.
The United States isn’t a member of OPEC and neither is Canada, America’s top source of foreign crude oil. Last year, OPEC countries accounted for 14% of crude oil imports while Canada accounted for 61% of gross crude oil imports, according to the U.S. Energy Information Administration.
But in the global market for oil, OPEC decisions can still have effects on American drivers, observers say.
By the start of Monday’s trading day, crude oil prices began to drop on news about the deal. But there needs to be a sustained dip in barrel prices before drivers see a difference when filling up, and McGee isn’t expecting that in the near future.
Meanwhile, Americans have come to expect — but definitely not like — paying higher prices for all sorts of goods and expenses. Consumer prices climbed 5.4% from June 2020 to June 2021, government figures show.
The OPEC+ production deal “is only going to meet a seasonal increase in demand and it is not going to offset the drop in oil inventories that we are seeing,” said energy industry expert Phil Flynn, senior market analyst at the PRICE Futures Group.
In Flynn’s view, OPEC is taking “the side of caution and is more interested in supporting prices than it is in feeding the global economy.”
Historically, gas becomes cheaper after Labor Day, when people stop travelling and get back to work and school routines, McGee noted.
It’s still too early to say what kind of price drop will occur this fall, she said.
Source: Market Watch