An OPEC meeting last week ended in the group targeting 100 percent compliance, meaning it will restore oil production to the original amounts that it agreed to in 2016.
This return to compliance means that there will be an increase in oil production come July 1 when the agreement kicks in, but whether or not it’s enough to reduce gas prices remains an uncertainty. While some think things are headed in the right direction, others hypothesize that fuel prices are likely to continue to climb throughout the summer. Let’s take a balanced look at what we can expect.
The Good
Relief at the gas pump is likely on the way for American drivers thanks to an agreement reached by OPEC to raise oil production by some 600,000 barrels per day. The exact details remain a little murky on exactly how many more barrels per day are set to be produced, but the rules of supply and demand are relevant. The more supply of a particular product or service there is, the more affordable prices are going to be.
Last week, gas prices averaged $2.89 a gallon nationwide, a direct result of less oil being barreled, thereby meaning less supply in the market. That’s up substantially from the $2.27 a gallon national average that we saw a year ago at this time, according to AAA. However, with OPEC’s announcement last week, prices have already dipped nationally by about a nickel this week, and many prognosticators predict gas prices will fall into a $2.70 a gallon sweet spot through the fall.
This is not just good news for motorists, but for frequent travelers as well.
The Bad
Though it’s seemingly good news that OPEC has agreed to produce more oil, many experts don’t expect the output to be enough to significantly drive down prices, and still expect to see gas prices of more than $3 a gallon this summer. Why? Because many believe there’s still enough worldwide demand (and not enough supply) for oil that the increase is going to do little to offset this strong demand.
This likely draws the ire of President Donald Trump, who last week called on OPEC to substantially increase output so that prices could decrease.
Is a Super-OPEC on the Way?
It’s a possibility. In fact, OPEC and non-OPEC members met over the weekend in talks largely geared toward forming a “super” OPEC of sorts that’s comprised of some 25 countries. That’s roughly half of the world’s oil-producing nations.
If a super OPEC were to occur, many project oil prices to increase even more than what they’re at now. That’s because the thought is that more power would be given to those who produce the most oil.
As OPEC currently operates today, each member only gets one vote, regardless of how much oil they produce. Reports out of the talks indicate that they were dominated primarily by Russia and Saudi Arabia, two of the bigger oil producers. For some context, together, Russia and Saudi Arabia are responsible for about 20 percent of the world’s total oil supply. Should a super OPEC take formation, the two nations would likely have a greater hand in driving policy more than others.
Regards,
Ethan Warrick
Editor
Wealth Authority
