Gasoline

Published on December 13th, 2016 | by Steve Hanley

11

Price Of Oil Headed Back Up, Gasoline Hikes Will Follow

December 13th, 2016 by  
 

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.

Higher oil prices may lead to higher prices for gasoline

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





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About the Author

I have been a car nut since the days when Rob Walker and Henry N. Manney, III graced the pages of Road & Track. Today, I use my trusty Miata for TSD rallies and occasional track days at Lime Rock and Watkins Glen. If it moves on wheels, I'm interested in it. Please follow me on Google + and Twitter.



  • kvleeuwen

    Hmm, I don’t think much will change with high gas prices alone.
    The cheapest gas around here (euro 95) is €1.19/liter which translates to $4.80/gallon.
    And that is still cheap enough to keep cars idling at an open bridge etc.

  • Eco Logical

    It seems obvious to me … lower the price for diesel and gas to get everyone addicted again (i.e. diesel and gas guzzling trucks/SUVs stay on the road at least 10 years) then raise the price … Marketing 101. I’m amazed there are so many people gullible enough to get sucked into the ruse. Wake up people!

  • trackdaze

    Oil is caught in a trap now.
    Despite the low prices consumption never really took off.

    OEDC consumption has been declining and china is flat and about to decline on the back of efficiency standards and its ev revolution.

    The oil producing nations will soon find they have to meet again.

  • The higher the better for the environment, and maybe those enormous SUVs will become prohibitive to own.

  • dogphlap dogphlap

    Did not the Ford CEO just say no one cares about fuel efficient vehicles ? He could be right for now, next year who knows.

    • Steve Hanley

      He actually said there is no market for electric cars.

  • dogphlap dogphlap

    That image of an oil refinery is beautiful and illustrates what chemical engineering can produce given enough financial incentive. Not that oil refineries are known for their level of safety, they do have an unfortunate history of fire and or explosions. Shame the products are destroying the planet at least for the higher life forms (things will probably never get so bad as to wipe out all the bacteria and smaller life forms).
    When I look at that image it reminds me of the folks going on about the damage being done to the environment by the production of Li-ion batteries and associated mining despite that that will never reach the damaging levels the petroleum industry of today already inflicts on the world.

    • kevin mccune

      Our mantra should be , ” Remember the Gulf !” , BP got away with little incentive to do better , the Gulf may never be the same ( don’t need to add any cooking oil to cook those shrimp ) Can you believe they added DISPERSANTS , to make that gunk settle to the bottom .How did that ever make any sense ?

      • Steve Hanley

        No one said it had to make sense. The one and only objective was to get the problem out of public view. The Gulf is fucked for the next 300+ years, thanks to BPd but we can’t see it so it doesn’t count.

  • Jonny_K

    The “Fracklog” will put a cap on oil prices, or so say oil industry analysts including those at the Sierra Club. What’s the fracklog? It’s the wells drilled but not put into production. But they can be started up in a matter of months and will be if the price of oil goes up by a lot or maybe just a little. The Sierra Club estimate, as I recall, is as $55/barrel is enough to bring some wells on line. Google “Fracklog” and read all about it.

  • Gas should be $8 a gallon in the US the same as it is in most of Europe.

    I predict that within 4 years it will be back to between $4 & 5/gallon in the US.

    This is a good thing.

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