After months of decline following falling crude prices, gasoline and diesel prices have started rising thanks to soaring crude prices.
The national average gas prices in the United States have inched up to $3.565 per gallon from $3.543 a week ago, while a gallon of diesel now averages $3.842 from $3.837 a week ago. Oil markets are looking to build on three straight weeks of increases, which coincides with the oil price rally.
Oil markets have enjoyed a sustained rally over the past three weeks, with oil prices briefly moving above $80 per barrel for the first time in two months, ostensibly thanks to rising demand and OPEC+ supply cuts finally causing global markets to tighten.
Whether or not the oil price rally has any legs, however, remains to be seen, with supply tightness in global oil markets being challenged by growing production from the likes of Iran and Venezuela, as well as record production by the U.S. Shale Patch.
Rystad Energy has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022’s production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that.
The Biden administration has been pleading with American producers and even OPEC to ramp up production in a bid to keep oil and fuel prices low. But it’s become a tug-of-war between the U.S. Shale Patch and OPEC, with the former trying to take advantage of cyclically high oil prices by growing production while the likes of Saudi Arabia and Russia are trying to keep supply low to goose prices.
For the second month running, the leading OPEC producer, Saudi Arabia, has extended its voluntary 1M bbl/day oil production cut for another month, this time till August.
The reduction will take the country’s production to ~9M bbl/day, the lowest level in several years. Saudi Arabia has been single-handedly sacrificing sales volume in a bid to goose weak oil prices but has so far reaped little reward.
However, oil traders remain unconvinced that the cuts will have the desired effect over the long term, with Marwan Younes, the chief investment officer of hedge fund Massar Capital Management, saying the gains are likely to be short-lived.
