Friday, 14 of December of 2018

Economics. Explained.  

Gasoline Prices

December 12 2018

Gasoline prices at the retail level fell $0.03 in the week ending December 10 to $2.42 per gallon.  In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.17. The Department of Energy expects national gasoline prices to average $2.50 in 2019.

Spot prices for gasoline have fallen sharply in recent weeks primarily because of the decline in crude prices.

The selloff in the stock market that began in October pushed oil prices lower.  Investors believed that higher short- and long-term interest rates would slow the pace of economic activity and, hence, reduce the demand for oil.  More recently  oil production around the globe has surged in response to higher prices and prices  have sunk to $52 per barrel.

U.S. production, for example,  has surged from 10,900 thousand barrels to 11,600 thousand barrels per day in just a few weeks.  Saudi Arabia has also increased its production.

The Department of Energy expects U.S. production to average 10.9 million barrels this year and climb 10% further to 12.1 million barrels in 2019.  This means that the U.S. became the world’s largest oil producer in March of this year and the gap between U.S. production and that of Russia, and Saudi Arabia will widen in 2019.

There is so much oil currently flooding the market that oil inventories have risen rapidly.    However, at 1,092 million barrels crude inventories are still somewhat lower the 5-year average of 1,116 million barrels so one can hardly characterize this as an oil glut.  It is, however, a sign that currently supply continues to exceed demand.

The wild cards right now are production levels for Venezuela and Iran.  Venezuela’s oil output has been falling steadily for the past couple of years and is showing no sign of recovering.  Iran is different.  The Iran sanctions went into effect in early November.  Iranian production has not fallen too sharply yet, but the U.S.’s  goal is to reduce exports (and, hence, production) close to zero.  Thus, as we go forward Iranian output could fall sharply and counter much of the recent oversupply.  OPEC claims it has ample reserves to offset any Iranian shortfall, but its surplus equipment is old and has not been used in some time so we will see.

Stephen Slifer

NumberNomics

Charleston, SC*


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