The pain at the pump has really hit home for many Americans during the recent holidays with prices that have averaged 73 cents more than a year ago. The average price of regular gas nationwide was $2.26 a year ago. The price of gas on Independence Day was the highest in four years. A barrel of Brent crude increased by five dollars from April to May.
More than one variable has been at play creating a surge in the price of oil. The OPEC member countries voted to cut back on oil production in 2016. With demand staying high, and even higher in China, the price of oil, and by extension gasoline, was impacted by the falling supply.
The U.S. supplies Saudi Arabia with military weapons, including a $350 billion deal last year. The president has asked the Saudi King to increase oil production. The head of OPEC said that they anticipate ramping up and producing 11 million barrels a day in July. Saudi Arabia is the world’s largest exporter of oil.
In June, crude oil prices hit a three and a half year high. According to AAA, “for the first summer driving season in five years, the U.S. has seen the largest one-week reduction (9.9 million barrels) in crude inventories.”
One barrel of crude oil can produce about 20 gallons of gasoline and 11 gallons of diesel fuel or heating oil.
Gasoline Prices in the U.S.
The price at the pump is in large part driven by oil futures trading. For oil-producing countries, that currently have strained diplomatic relations with the U.S., the impact is marginal.
Iran and Venezuela are two examples. Iran is the world’s fifth largest producer of oil, accounting for five percent of the world’s production. The withdrawal from the 2015 Iran nuclear deal includes a return to sanctions on Iranian oil exports. The sanctions are expected to remove 300,000 to 500,000 barrels per day of Iranian oil from world markets. Venezuela’s internal political strife has reduced its production.
These shortfalls have been made up by other oil-producing countries for the time being.
Global oil supply was partially impacted by a power outage in Canada recently that effected a major oil producer there.
Ironically, the U.S. produces 14.86 million barrels a day. That is 15.3 percent of the world’s production. Saudi Arabia follows, with 12.7 percent of the world’s production. That represents 42 percent of the Saudi Arabia’s gross domestic product (GDP). Oil represents 90 percent of Saudi Arabia’s export earnings.
Russia, Canada and Iran round out the top five spots. There is a difference between oil producers and the amount a country exports, but the U.S. is also a net exporter, just not at the level of Russia or Saudi Arabia. U.S. exports are expected to more than double in the next five years.
The U.S. and China are the worlds two largest consumers of oil, representing a third of all consumption between the two. China remains the main driver of increased oil consumption worldwide.
What does the future hold? According to the U.S. Energy Information Administration, the amount of oil imported into the U.S. will fall from an annual average of 3.7 million barrels a day last year to 1.6 million in 2019. That will be the lowest import level since 1959. That makes the U.S. more energy independent and could mean better prices at the pump.