Today’s Shale ‘Splainer: Why Gasoline Prices are Fixin’ to Rise Again

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adobestock 1

Many of you have no doubt noticed that the price you pay for gasoline has fallen over the past month. This drop in gas prices came on the heels of a significant uptick that took place during the spring, and has served as a welcome respite during the peak of Summer driving season.

Well, while we hate to be the bearers of bad news here at Shale Magazine, we feel compelled to warn you not to get used to these lower prices.  Because a confluence of international events is setting the stage for rising prices over the remainder of the summer.

Here’s why:

  • OPEC and Russia did not effectively address supply issues – After their recent meeting on June 22-23, the parties to the OPEC/non-OPEC agreement to limit exports announced that they had agreed to “add” up to 800,000 additional barrels of oil per day onto the global market.  What they avoided noting in their statement that all they had actually agreed to do is raise their output up to their previously agreed-to quotas, which they had significantly under-shot over the previous few months.  As a result of this non-action, the markets responded with a 10% rises in crude prices in the following few trading days.
  • Libya had to halt exports on Monday – Amid ongoing civil strife, exports were halted at Libya’s main export hub on July 2, removing 850,000 barrels of oil per day from the global market.  No one knows when exports from this OPEC member nation will resume.
  • Venezuela is collapsing – Exports from once-exporting giant Venezuela continue their steep downward trajectory as their socialist/fascist government collapses.  An exporter of as much as 3 million barrels per day as recently as 2012, Venezuela’s monthly shipments are now less than half of that, and are projected to fall by as much as another 500,000 barrels per day by the end of 2018.
  • Then there’s Iran – Exports from Iran are also beginning to fall as the U.S. places pressure on its trading partners to halt doing business with the terror-supporting Islamic Republic.

The rise in crude prices was temporarily interrupted on Monday in the wake of the joint announcements by President Trump and Saudi King Salman that Saudi Arabia was prepared, at the President’s urging, to increase its own exports by up to 2 million barrels per day if crude prices continue to rise to undesired levels.  There is no doubt that the Saudi Kingdom does have excess production capacity, but some experts are skeptical that they could quickly add quite this many barrels to the open market.

Regardless, the totality of current market factors indicate we can expect crude prices to keep rising in the near term, and that means that gasoline prices will soon be rising along with them.  Because that’s the way the market works.

For more information, tune in to In The Oil Patch Radio, where host Kym Bolado and I discuss this and other energy-related information each week.  The show airs each weekend in every major market in Texas, including at 8:00 Sunday evenings on our flagship KTRH AM 740 in Houston, and can also be heard at iHeartRadio.

This concludes our Shale ‘Splainer for today.



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