High oil prices mean gas is more expensive in the US

FRANKFURT (ODER), Germany – Oil prices have risen, that is Drivers are paying more for gas and truck drivers and farmers use more diesel.

The increase also further complicating the fight against global inflation and feed Russia’s war chest. That poses a problem for politicians and citizens alike who have to spend more to get to work, transport the world’s goods or harvest the fields.

Here’s what to know about the recent increase – and where the price might go:

Above all, Saudi Arabia’s decision to cut The amount of oil it sends to global markets has pushed prices higher.

The world’s second largest oil supplier has cut production by 1 million barrels per day since July and decided this month to reduce production. widen the cut to the end of the year.

Russia, an ally of Saudi Arabia Alliance of oil producers OPEC+also extended cuts of 300,000 barrels per month through 2023.

Simply, tighter supplies mean higher prices.

International benchmark Brent traded below $94 a barrel on Monday, up from $90 before the September 5 extension and from $74 before the Saudi cuts were first announced. US oil traded at around $90.50, up from $68 before the Saudi cut.

Some analysts say oil could reach $100 a barrel due to strong demand and limited supply. But that is not the only view.

Jorge Leon, senior vice president of oil markets at Rystad Energy, said oil prices can be volatile and while they could quickly top $100 in the coming months, they are unlikely to stay at that level. there. He predicts average prices will be in the low $90s in the last three months of the year.

The number remains historically high, he said, supported by a “resilient” capacity. fuel needs for driving and flying.

The Saudi cuts are one unilateral move being outside the framework of the OPEC+ alliance means the kingdom can make changes as needed to quickly respond to changing market conditions.

Leon said the Saudis would review cuts every month – and could add more barrels if prices spiked to potentially severe levels. Inflation is more serious in oil buying countries. Excessive price increases could mean central banks around the world increase interest rates further or keep them at higher levels for longer periods of time.

“I don’t think it would be wise for the Saudis to push that,” Leon said. “The last thing you want to do is fuel inflation again with much higher oil prices. That will kill economic growth and lower growth will mean lower oil demand at the end of the day.”

The big question is what fuel demand is growing with recovery tourism the depth of the COVID-19 pandemic. America’s strong economy increases oil demand – and prices – while China’s growth is weak and Europe has the opposite effect.

“We see the potential for oil price increases to be almost exhausted,” said Thu Lan Nguyen, head of commodity research at Commerzbank, who predicts oil prices at $85 a barrel by the end of the year. and if anything a setback is expected amid a weak economy.” “Oil prices are only likely to go higher once the economic outlook begins to brighten, which will happen next year.”

Another factor is financial speculation, and it seems that investors are flocking to the oil market with bets that prices will rise.

“Most of the increase in prices beyond $85 a barrel is due to the influx of speculative money, while there is still essentially plenty of oil in the world to spare,” said Gary Peach, oil market analyst at Energy Intelligence. meet today’s needs”.

Additionally, more Iranian oil could appear on the market as the US “turns a blind eye” to enforcing sanctions to keep prices from rising further, Leon said. That could add another 200,000 to 300,000 barrels per day.

More expensive oil is given higher gasoline and diesel pricesespecially in the US, where nearly half the pump price reflects the cost of crude oil – the rest is marketing, taxes and other costs.

Crude oil accounts for a smaller share of gasoline and diesel prices in Europe because fuel taxes are much higher there.

The average pump price in the US is still much lower than that record $5 per gallon seen in summer 2022. But at $3.85 a gallon, they’re still up 15 cents from a year ago. Oil costs are driving gas prices higher even as driving demand declines after the summer holidays end and gasoline stocks are plentiful, according to the AAA auto club.

Diesel prices have increased At the same time, along with higher oil costs and refineries face a shortage of the best crude grades to produce diesel. Refineries are also opting to produce jet fuel instead in pursuit of profits as air travel recovers. A gallon of diesel cost $4.58 last week, up from $4.34 a month ago.

That hurts farmers, who use a lot of diesel, and increases the price of consumer goods shipped by truck, which is pretty much everything.

Diesel supplies tightened even more on Friday after Russia said it would cut back Temporarily suspend the export of petroleum products to keep gas prices at home.

Oil is Russia’s main source of moneyhigher prices therefore help the Kremlin pay for invading Ukraine and overcome Western sanctions intended to crush the country. wartime economy.

The recent increase in oil prices along with discount cuts has sanctions forced Russia to make an offer Asian customers mean Moscow will earn “significantly more revenue from those exports,” said Benjamin Hilgenstock, senior economist at the Kyiv School of Economics.

Additional revenue could reach an estimated $17 billion this year and $33 billion next year, he said in an online talk hosted by the Brussels-based European Policy Center.

Russia lost about 100 billion USD in oil revenue European Union import ban and a Price limit is 60 USD/barrel imposed by the Group of Seven major economies, prohibits Western insurers and shippers from handling oil priced above that level.

However, Russia is increasingly finding ways to get around the limit, including using a fleet of ghost tankers to hide the ownership and origin of the crude oil they carry.

Any additional export earnings could help Russian currency support and what it can import – including weapons components.

US President Joe Biden has faced criticism from Republican lawmakers for his encouragement of more oil drilling and scrap removal. electric vehicle support.

But that criticism largely ignores the increase in US oil production over the past year. The U.S. Energy Information Administration reported that oil production averaged 12.8 million barrels a day in June, up 1 million barrels from 12 months ago, close to the level reached before the pandemic began in June. 2020.

Biden said he sees oil production as essential to keeping the economy growing as a bridge to a future with electric vehicles and renewable energy.

However, the White House considers the worldwide oil market to be undersupplied, consistent with recent OPEC data suggesting a possible shortfall of 3 million barrels per day worldwide. The administration is also communicating with domestic and international producers about long-term supply needs, trying to ensure that the risk of higher oil prices does not disrupt economic growth.

Associated Press writer Josh Boak contributed from Washington.