August 7, 2019
Gasoline prices at the retail level fell $0.03 in the week ending August 5 to $2.69 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.44. The Department of Energy expects national gasoline prices to average $2.62 in 2019, slightly lower than where they are currently.
As a result of production declines in Venezuela, Iran, and Saudi Arabia, oil prices climbed to $63 about this time last year but they have fallen to about $52 recently as U.S. production quickened. The Department of Energy expects crude prices to average $57.87 this year.
Crude oil output in both Venezuela and Iran has declined markedly. Venezuela’s oil output has been falling steadily for the past couple of years and is showing no sign of recovering. The Iranian sanctions went into effect in early November. Iranian production has since fallen sharply. The U.S.’s goal is to reduce exports (and, hence, production) close to zero.
Meanwhile, U.S. production has surged from 10,900 thousand barrels to 12,300 thousand barrels per day. A cut in oil production by the Saudi’s combined with reduced production in Venezuela and Iran have boosted the price of oil somewhat. The Saudi’s would like it to climb to $90, or at least $85, per barrel to ensure that their budget deficit remains in balance. That is not going to happen. As prices rise U.S. drillers will quickly boost production. At the moment the impressive increase in U.S. production is countering the cutbacks from Venezuela and Iran. The Saudi’s share of global production has been falling steadily for the past couple of years. However, the Saudis cannot allow its market share to continue to slide.
The Department of Energy expects U.S. production to climb 13% from 11.0 million barrels last year to 12.3 million barrels this year and to 13.3 million barrels per day in 2020. The U.S. became the world’s largest oil producer in March of last year and the gap between U.S. production and that of Russia, and Saudi Arabia will widen in 2019 and 2020.
The cut in Saudi production combined with reduced production in Venezuela and Iran appears to have gotten supply and demand back into better balance. At 1,084 million barrels crude inventories are a bit below the 5-year average of 1,116 million barrels. However, the storms in the Gulf of Mexico in July significantly curtailed production and caused inventory levels to decline a bit more sharply than expected.