It’s expected that the average cost of gasoline may reach $3 a gallon shortly, with demand increasing to a record level of 9.86 million barrels a day.
With unemployment low and the economy stabilizing, consumers are driving more and spending more — both of which factor into gas and energy costs. Summer driving months are likely to increase this demand even further, even as tensions in the Middle East continue to rise. All of this is good news for the United States domestic oil and gas markets.
In a move that surprised absolutely no one, President Donald Trump sounded off on the trend, tweeting the following:
“Looks like OPEC is at it again! With record amounts of Oil all over the place, including the fully loaded ships at sea, oil prices are artificially Very High! No good and will not be accepted!”
The implication here is that prices were currently being kept at artificial highs temporarily impacted the market, with U.S. West Texas Intermediate oil prices dropping to $67.50 and International crude oil prices dropping to $72.83. However, the market quickly recovered.
This isn’t entirely an unfounded allegation, nor does it come from nowhere. It’s long been known that OPEC has manipulated oil prices before, but generally in the opposite direction. As North American oil production has increased, OPEC has historically sought to lower per barrel prices, thereby pushing competition out of the market. Over the last decade, OPEC has flooded the market with cheap oil supplies, likely in hopes that its competition would not be able to keep up with demand.
In more recent times, however, OPEC has scaled back its production of oil. Saudi Arabia’s top oil exporter has noted that they would like to see crude oil prices rise to $80 or $100 per barrel, which is far off from the current $60 to $70 price range. Even that, in turn, is still far off from the highest recorded price: $147.02 on July 11, 2008.
Oil prices experienced a tremendous crash in 2008, when they fell from $145 to $32. Cheap energy and gas prices have long been correlated with economic success. Low oil prices mean cheaper manufacturing, transportation, and travel. In general, the country thrives during periods of cheap oil. It is easy to see why the current administration would feel pressured to further ensure cheap oil costs.
However, oil prices aren’t likely to be rising solely due to market manipulation from OPEC. Though OPEC has cut back on its own production, volatility is also being seen due to lower than expected demand for oil. In 2008, the demand for oil was 85.8 million barrels per day. By 2018, the demand had risen to 99.3 million barrels. As many countries are moving away from older energy sources, such as coal, the overall demand for oil is increasing — but it isn’t increasing as quickly as was initially expected.
It’s expected that oil prices are going to increase to $85 by 2025. By 2030, it may have risen to over $90. Previous forecasts had anticipated that per barrel oil prices could exceed $200 a barrel. In 2008, it appeared as though these prices were well on their way.
This leads to another question: is it possible that oil prices could increase to the extremes that were previously seen in 2008?
It is indeed possible, as it has been shown that the market and the economy can support this pricing. However, this would require some significant issues to arise, such as shortages, artificially decreased supply, and substantially increased demand. As of now, it appears as though the prices for crude oil will be rising steadily to meet demand, but not increasing sharply. This is in large part due to new technologies and investments in oil and gas production.
The past decade has been an extremely volatile one for the oil and gas industry. With the widespread adoption of hydraulic fracturing across North America, domestic crude oil has become far more plentiful, accessible, and affordable.
Though OPEC could potentially manipulate the market further, domestic oil producers are continuing to increase their own oil production and consequently their share in the global market. It’s not likely that rising costs have to do substantially with OPEC, but are rather the market stabilizing in the wake of increased demand. Regardless, it does appear that oil and gas will be on the rise.
Regards,
Ethan Warrick
Editor
Wealth Authority
