Oil Prices Reverse Their Rise, and Drivers May See Relief
Posted May 25, 2018 3:32 p.m. EDT
HOUSTON — Oil prices are suddenly slumping again, just as American motorists were increasingly feeling the bite.
The price of crude has dropped by almost 7 percent since a recent high on Tuesday, a result of seemingly coordinated signals from Russian and Saudi officials that they are ready to increase production.
The abrupt reversal interrupted a surge in the American benchmark from less than $50 a barrel last fall to over $70, largely because of the collapse of Venezuelan oil production, the withdrawal of the United States from the Iran nuclear deal and stronger global demand for energy.
But now Russian and OPEC officials appear concerned that the potential for a price spike similar to one a decade ago could spur another drilling frenzy in the United States as well as robust sales of electric cars and other fuel-efficient vehicles.
The Russian energy minister, Alexander Novak, fanned speculation about a pivot on supplies when he suggested Thursday that Russia and producers in OPEC would talk next month about easing their 2-year-old agreement to reduce production.
On Friday, speaking at a conference in Russia, the Saudi oil minister, Khalid al-Falih, said producers had already begun consultations. “The anxiety level that has escalated over the last few weeks is a concern to us,” he said. “I think in the near future there will be a time to release supply.”
Russia and Saudi Arabia have more than 3 million barrels of spare daily production capacity, so they are capable of more than compensating for production losses from Iran and Venezuela.
Energy experts had predicted for weeks that American motorists might head into the summer driving season facing an average gasoline price of $3 a gallon for the first time since 2014. Now, with oil falling below $70 a barrel in the United States, a lower gas price is possible.
“The chatter will arrest what was a long, painful ascent toward higher prices for motorists,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. He added that it was “pretty much guaranteed” that regular gasoline would fall just short of a $3 per gallon national average over the Memorial Day weekend.
Nevertheless, gasoline prices have been rising, as they usually do during the busy summer driving season. The national average for a gallon of regular gasoline Friday was $2.97, nearly 6 cents above a week ago and roughly 60 cents above a year ago, according to the AAA motor club.
Democrats have been blaming the Trump administration for the rise in gasoline prices. “President Trump’s reckless decision to pull out of the Iran deal has led to higher oil prices,” the Senate minority leader, Chuck Schumer, D-N.Y., told reporters at a gasoline station near the Capitol this week. He added that the result was “soaring gas prices, something we know hurts middle- and lower-income people.”
President Donald Trump voiced concern about higher gasoline prices, and how they might counteract the impact of recent tax cuts, when he railed against OPEC last month, saying it had unreasonably manipulated supplies.
“Looks like OPEC is at it again,” Trump wrote on Twitter. “Oil prices are artificially Very High! No good and will not be accepted!”
The unusual swipe appeared to put pressure on OPEC to respond. Mohammad Barkindo, OPEC’s secretary general, said on Friday, “In OPEC we always pride ourselves on being friends of the United States.”
Moderate global oil prices help the administration put pressure on Iran and Venezuela with sanctions, since a jump in energy prices after such actions would be disruptive to the world economy and could hurt Republicans in the fall elections. After the disputed election Sunday in Venezuela, the administration is considering tougher sanctions against the South American country’s oil industry.
Americans consume roughly 400 million gallons of gasoline a day, so the 60-cent increase over the last year means roughly $240 million less every day in consumer pockets. It is particularly burdensome for working-class Americans or those in rural areas who drive older, less fuel-efficient cars and spend a higher percentage of their income on fuel.
Gasoline prices vary greatly by state, in part because of differences in taxes and fuel regulations. Californians paid an average of $3.73 a gallon Friday, for instance, while Texans paid an average of $2.76.
Prices are still well below what they were a decade ago, when the national average topped $4 a gallon and oil prices topped $100 a barrel. The American benchmark price is now about $68 a barrel.
There is a lag of at least a few days between the direction of oil prices and gasoline prices, with the acceleration in gas prices letting up in recent days.
Oil prices are inherently volatile, and they could go back up any time. But for the moment, it appears that Russia and Saudi Arabia, which leads OPEC, want to work out a strategy to increase supplies later this year while averting a scramble for market share that could send prices down again.
“Saudi Arabia and Russia have put a soft ceiling on oil prices for now,” said Bhushan Bahree, an energy analyst at IHS Markit.