Price Of Oil Headed Back Up, Gasoline Hikes Will Follow

In the world of oil, Saudi Arabia is the tail that wags the dog. For several years, it has stubbornly refused to cut oil production in the face of falling oil prices in order to maintain its dominant share of the oil market. It is also part of a strategy to drive tar sands and fracking producers out of business. Those non-traditional sources of oil are far more costly than pumping from reserves under the Arabian desert.

At the end of November, OPEC and other oil producing nations agreed to cut global oil production by 1.2 million barrels a day at a meeting in Vienna, according to OPEC Conference President and Qatar energy minister Mohammed Bin Saleh Al-Sada. That agreement sent oil prices above $50 a barrel for the first time in years. Higher oil prices will eventually lead to higher prices for gasoline.

“This is a much bigger cut than most people thought we’d get and could send the oil price up to between $56 to $60 per barrel,” say Bob Minter, investment strategist at Aberdeen Asset Management. The agreement takes effect on January 1 and is set to expire after 6 months.

Gas prices typically fall in the winter months when people drive fewer miles. But that may not be true this year. “Something we have not seen very often is that gas prices have been rising during the month of December,” said Patrick DeHaan, senior petroleum analyst at GasBuddy.com. “I think we’ll continue to see prices picking up.” Gasoline prices averaged $2.21 per gallon nationwide as of December 12, according to GasBuddy. That was up 3.8 cents from November’s average and up 19.8 cents from a year ago.

Rising gas prices could send shivers through the wallets of Americans who have doubled down on large gas sucking trucks and SUV’s during the past two years. USA Today predicts the price of gasoline could rise to around $3.00 a gallon by the spring of 2017. If so, Americans will be paying almost 50% more for gas than they did during the same period this year.

“With this era of low gas prices, many Americans were trading in their vehicles, selling their vehicles, buying new vehicles that have been less fuel-efficient,” DeHaan said. “If gas prices do start to inch up, there’s a lot of Americans that bought a new vehicle in the last two years during this climate of low gas prices, so it may affect them more.”

The question now is whether the announced cuts will ever actually take place. Massive cheating is the rule rather than the exception among oil producing nations. The agreement could fall apart even before it expires June 30 if member nations continue to slit each others’ throats to increase their share of the world market.

Americans seem to think they have a God given right to cheap gasoline, regardless of any consequences that may flow from their gluttony. If gas prices spike, there will be a chorus of protests from the populace demanding the government “do something.” That would be the same government that many Americans say they despise and vilify for its meddling in the free market. Interesting how hypocrisy is something we can always see in others but seldom in ourselves.

Source: USA Today