Monday, 24 of June of 2019

Economics. Explained.  

Gasoline Prices

June 19, 2019

Gasoline prices at the retail level fell $0.06 in the week ending June 17 to $2.67 per gallon.  Gas prices have declined in each of the past six weeks by a total of $0.22.  In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.42. The Department of Energy expects national gasoline prices to average $2.64 in 2019, slightly lower than they are currently.  While retail prices have fallen $0.24 in the past six weeks, spot prices have declined by almost $0.40.  Thus, retail prices should continue to slide for another week or two.

As a result of production declines in Venezuela, Iran, and Saudi Arabia, oil prices climbed to $63 a couple of weeks ago before retreating to $53 in the past couple of weeks.  The Department of Energy expects crude prices to average $59.29 this year.

Crude oil output in both Venezuela and Iran has declined markedly.  Venezuela’s oil output has been falling steadily for the past couple of years and is showing no sign of recovering.  In fact, the blackouts in Venezuela significantly curtailed production in March.  The Iran sanctions went into effect in early November.  Iranian production has since fallen sharply.  The U.S.’s  goal is to reduce exports (and, hence, production) close to zero.

Meanwhile, U.S. production  has surged from 10,900 thousand barrels to 12,200 thousand barrels per day.  The cut in oil production by the Saudi’s combined with reduced production in Venezuela and Iran initially boosted the  price of oil to about $65.  The Saudi’s would like it to climb to $90, or at least $85, per barrel to ensure that their budget deficit remains in balance.  That is not going to happen.  As prices rise U.S. drillers will quickly boost production.  At the moment the impressive increase in U.S. production is countering the cutbacks from Venezuela and Iran.  The Saudi’s share of global production has been falling steadily for the past couple of years.  However, the Saudis cannot allow its market share to continue to slide.

The Department of Energy expects U.S. production to climb 13% from 11.0 million barrels last year to 12.4 million barrels this year and  to 13.3 million barrels per day in 2020.  The U.S. became the world’s largest oil producer in March of last year and the gap between U.S. production and that of Russia, and Saudi Arabia will widen in 2019 and 2020.

The cut in Saudi production combined with reduced production in Venezuela and Iran  appears to have  gotten supply and demand back into better balance.    At 1,127 million barrels crude inventories are  in line with the 5-year average of 1,116 million barrels.

Stephen Slifer


Charleston, SC

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