Many oil analysts have done a disservice to the average American that is more impactful to gasoline prices than the supply of crude. Talk a year ago that we were in an era of low prices for eternity and that oil might never trade above $40.00 a barrel again, was wrong.
Many have doubted OPEC’s resolve to cut production and talk about a glut of supply but failed to talk about the bigger issue of underinvestment and geopolitical risks that are a threat to the economic recovery. The changing dynamic of oil and gasoline exports mean that supply should be viewed in a global sense and is why many missed the rise in oil and gas prices from a year ago. They have given drivers and business a false sense of security underestimating the impact the average American at the gas pump.
AAA confirmed a sharp rise in gas prices that we saw in the Lundberg Survey, driving the average price for unleaded gasoline nationally that hit $2.38 per gallon in March, a 19-month high. Those prices are poised to move even higher as OPEC and non-OPEC cuts start to be felt and the realization that over the long-term, shale oil process cannot replace larger projects with slower decline rate. With rising geopolitical risks around the globe and a path to a tightening global oil market, the upside risks are rising.
Supply worries also matter. As I have said before, we cannot count on Libya to be a reliable supplier in the near term. Once again shutdown of Libya’s Sharara oilfield just after it was brought back online, shows that the situation in the country is still not stable.
The situation in Syria has become more serious. Russia and Iran say they will respond to U.S. aggression. This comes as the Trump Administration is signaling that there may be more retaliation against Syria for a chemical weapons incident. German Chancellor Angela Merkel Is telling President Trump to work through the UN. Then there also is the whack job in North Korea. Reports that China is sending troops to the North Korean border is also raising the stakes for oil. The Daily Mail reported that China deployed 150,000 troops to deal with possible North Korean refugees over fears that President Trump may strike Kim Jong-un following the missile attack on Syria. They fear that Trump’s Syria strike was interpreted as a warning to North Korea.
Leave A Comment