OPEC Doubles Down Against Shale, Fuel Prices Continue Downward Spiral

Cameron Aubernon
by Cameron Aubernon
opec doubles down against shale fuel prices continue downward spiral

OPEC is doubling down on shoving shale off a cliff, continuing the trend of low fuel prices through the fall in so doing, Memorial Day Weekend aside.

Thirty-three out of 34 analysts and traders surveyed by Bloomberg believe the Organization of Petroleum Exporting Countries will stay the course of 30 million barrels produced daily when the group meets in Vienna next month, the publication reports.

The reason to continue down this road is to ensure victory for Saudi Arabia’s strategy of putting shale oil producers and other competitive suppliers — notably those in Canada and the United States — in their place. Thus far, the plan is working: half of the drilling rigs in the U.S. have been idled since October, while production fell 1.2 percent last week to 9.3 million barrels/day. Global investment in production is expected to fall $100 billion in 2015, while demand growth for oil is projected to climb to 1.4 million per day over the same period.

In the meantime, fuel prices will continue on their own course. University of Purdue Wally Tyner predicts prices in all but California and Hawaii will remain below $3 throughout the summer, Forbes says. This is, of course, due to the ongoing supply glut, hovering around 485 million barrels compared to the 350 million barrels normally available.

Meanwhile, Oil Price Information Service Tom Kloza believes fuel prices will stop at $2.50 this summer before dropping down between $2 and $2.25 this fall. Tyner adds Iranian oil could cut prices at the pump by 30 cents in 2016 should a nuclear deal between Washington and Tehran lead to a lift in sanctions.

Before the prices can fall, however, they must climb a bit for Memorial Day Weekend. AAA says prices rose 5 cents a gallon within the last week, with the current average national price hitting $2.71/gallon Tuesday, The Detroit Bureau notes. The group adds motorists are paying an average of 26 cents more for a gallon of regular in May than in April.

Causes behind the rise include regional production issues in the Midwest and West Coast, as well as a rally in crude prices; West Texas Intermediate and Brent are trading for around $60 and $66 respectively as of this writing.

Despite the price hike, motorists hitting the road this holiday are paying 94 cents less for each gallon dispensed compared to last year, the lowest average since 2009.

[Source: Robert Couse-Baker/ Flickr/ CC BY 2.0]

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  • THX1136 THX1136 on May 23, 2015

    I did not read all the comments so if this has already been addressed I apologize for the repetition. I have been surprised that we have not seen even a modest decrease in prices at the grocery store amongst other places. Lower fuel costs "should" translate to lower prices of commodities for consumers. Anyone have any thoughts they can share on this aspect of the price of oil affecting our lives? Thanks!

    • Lorenzo Lorenzo on May 24, 2015

      Commodities, especially groceries, are sensitive to increases, but not all the increases get passed on. To stay competitive, profit margins are shaved, absorbing some of the increase in costs to keep price increases as modest as possible. When costs go in the other direction, the first place the savings would go is back into profit margins for the retailer, supplier and middle man, and only later, if at all, into price reductions. Given that the Fed's measure of inflation is very conservative, it's likely that possible price reductions are eaten up by other rising costs. The best the consumer might get is stable prices over an extended period. At least that's what they used to teach in economics classes.

  • Bd2 Bd2 on May 28, 2015

    Regional production issues in the Midwest and West Coast - ahh, the near-annual fire or other mishap at a Midwest and West Coast refinery, perfectly timed with the periodic maintenance/change-over to summer blend to ensure inflated prices.

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