All hopes for significantly lower gasoline prices at the pump this summer were squashed when the Organization of the Petroleum Exporting Countries announced a smaller-than-expected increase in crude production, rallying prices for oil.
Oil prices rallied Friday, and ��I��m calling this a bust for motorists hoping for noticeably lower gas prices,�� said Patrick DeHaan, head of petroleum analysis at GasBuddy.
OPEC agreed to rein in overcompliance with its production-cut agreement and to scale back its 152% compliance rate back down to 100%. Based on the numbers OPEC provide, that equates to an output increase of 624,000 barrels a day for its members.
OPEC ministers have said that the agreement is to raise output by 1 million barrels, but that��s not in the statement the group provided. Nigerian oil minister Ibe Kachikwu said the 1 million-barrel agreement would see OPEC members raise output by at least 700,000 barrels a day, with non-OPEC countries, led by Russia, adding the rest, according to a Financial Times report.
Read: 5 things investors need to know about OPEC��s decision to lift oil output
��I��m calling this a bust for motorists hoping for noticeably lower gas prices.�� Patrick DeHaanAfter the news, August West Texas Intermediate crude CLQ8, +5.66% �added $3.04, or 4.6%, to settle at $68.58 a barrel��scoring a weekly rise of nearly 5.8%. July gasoline futures RBN8, +2.81% �added 5.8 cents, or 2.9%, to end at $2.071 a gallon��a more than one-week high. They were up 2.3% for the week.
��The agreement falls short of balancing global [oil] supply and demand, particularly in the fourth quarter,�� said Tom Kloza, global head of energy analysis at Oil Price Information Service. ��Given sanctions on Iran, chaos in Venezuela and Libya, and the usual unpredictable nature of Nigeria, we see crude-oil prices making another run at $70+ for WTI and $80+ for Brent LCOQ8, +3.52% ��
��That should underpin gasoline prices,�� he said.
Reformulated gasoline futures had lost about 28 cents a gallon, or more than 10% of value from the spring peak to earlier this week, Kloza said. ��For the moment, you probably won��t notice much change on the street, but today��s undersized pledge probably negates the five-10 cents [a gallon] gasoline price decline that we were looking for.��
And next week could see a very strong U.S. gasoline demand number from the Energy Information Administration, which would help gasoline rally a bit more, he said.
��The real risk comes with tropical storm season and [the] threat to Gulf of Mexico refineries,�� Kloza added. With export demand of about 600,000 barrels a day for gasoline and with domestic consumption likely to be 9.7 million barrels a day in peak driving summer weeks, the ��U.S. refiners have no room for error.��
Overall, OPEC��s move was ��lousy for motorists,�� said DeHaan, though his outlook for retail gasoline prices over the coming months isn��t much different as a result of OPEC��s decision.
The national average price for regular gasoline stood at $2.854 a gallon on Friday afternoon, according to GasBuddy.
It��s likely to fall to the mid-$2s in autumn and winter, ��leaving Venezuela and their falling production levels a wild card that perhaps OPEC will address,�� said DeHaan.
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