FRANKFURT, Germany (AP) — Saudi Arabia and allied oil-producing countries face a decision Sunday on whether to extend production cuts set to expire next month — a move that could push oil prices higher as the summer travel season dampens demand for fuel increases and the The battle for the American presidential elections becomes more intense.
The entire OPEC+ alliance, made up of members of the producer cartel and allied countries including Russia, is holding an online meeting, but the cuts in question concern a smaller group of eight, including the Saudis. These countries have previously cut about 2.2 million barrels per day to support prices that are weaker than the Saudis and other alliance members would like.
International benchmark Brent has hovered around $81-$83 per barrel over the past month. Even the war in Gaza hasn’t pushed prices up to the $100 per barrel level last seen in September 2022. Reasons include rising production from non-OPEC countries, higher interest rates and demand concerns due to slower-than-desired economic growth in Europe and China.
The Saudis need higher oil prices to finance Crown Prince Mohammed bin Salman’s ambitious plans to diversify the country’s economy away from fossil fuel exports. Higher oil prices would also help Russia maintain economic growth and stability as the country spends heavily on its war against Ukraine.
“The likely extension of OPEC+’s voluntary production cuts should see oil prices rise again,” said Barbara Lambrecht, a commodities analyst at Germany’s Commerzbank. “Ultimately, this would threaten significant undersupply in the oil market in the third quarter.” Her assessment was that “oil prices will rise significantly in the coming weeks.”
Price increases in the July-September quarter would come as the latest election campaign between US President Joe Biden and former President Donald Trump gets into full swing. Gas prices have been quiet lately, averaging $3.56 per gallon last week, down a cent from a year ago. That’s less than the national record average of $5 per gallon in June 2022.
Fuel demand over the Memorial Day holiday weekend, May 25 and 27, was weaker than last year. Still, demand typically peaks during the summer months as travel increases. Gas prices are a sensitive issue in the US and inflation has left many people dissatisfied with the state of the economy, despite relatively strong growth and low unemployment.
U.S. gas prices are rising along with crude oil, as oil makes up half the cost of a gallon of gasoline. Price fluctuations are much smaller in Europe because taxes make up a larger part of the fuel price there.
