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 increases demand for fuel and as the US presidential election contest heats up.
The full OPEC+ alliance, made up of members of the producers 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. Those countries previously cut some 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 loitered in the $81-$83 per barrel range for the past month. Even the war in Gaza has not pushed prices up toward the $100 per barrel level last seen in September 2022. Reasons include rising non-OPEC production, higher interest rates and concerns about demand due to slower than desired economic growth in Europe and China.
The Saudis need higher oil prices to fund ambitious plans by Crown Prince Mohammed bin Salman to diversify the country's economy away from fossil fuel exports. Higher oil prices would also help Russia maintain economic growth and stability as it spends heavily on its war against Ukraine.
“The probable extension of the voluntary production cuts by OPEC+ should cause oil prices to rise again,” said Barbara Lambrecht, commodities analyst at Germany's Commerzbank. “Ultimately, this would threaten a significant undersupply on 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 final election campaign between US President Joe Biden and former President Donald Trump gets into full swing. Gas prices have been quiescent recently, averaging $3.56 per gallon last week, a penny less than a year ago. That is down from a record national average high of $5 per gallon in June 2022.
Demand for fuel over the Memorial Day holiday weekend May 25-27 was weaker than last year. Still, demand typically spikes over the summer months as travel increases. Gas prices are a sensitive matter in the US and inflation has left many people disgruntled with the state of the economy despite relatively strong growth and low unemployment.
US gas prices rise along with crude because the price of oil makes up half the cost of a gallon of gasoline. The price swings are much smaller in Europe because taxes make up a bigger proportion of the price of fuel.