Gas Pump Relief

gas

Wallets and pocketbooks around the country have been experiencing some relief recently at the gas pump. The average price of gas has fallen approximately 30 percent since June, just in time for the holiday travel season. Most consumers are oblivious as to why the prices are dropping, just so long as it continues. Who does not miss the days $20 filled a tank?

More than half of the country’s gas stations are now selling gas for under three dollars per GasBuddy.com. The decrease in gas price is fueling the demand for more Americans to increase their amount of driving. Bloomberg Intelligence reported that U.S. stockpiles alone decreased by 1.2 million barrels last month, nearly twice the projected drop expected by analysts. The lowest gas prices have been recorded in the Southeast.

Several factors are contributing to this relief. One of the main factors, however, would be the U.S. shale drilling boom. It has created a surplus; a glut that should not fade away in the near future, according to a representative of DNB ASA, Torbjoern Kjus of Norway. The slowing global demand for petroleum coupled with the shale boom has loosened OPEC’s grip on price manipulation. As America’s dependency on Saudi Arabia for oil decreases with the substituted oil from the shale boom, Saudi Arabia, the top producing member nation of OPEC, is left watching the oil prices fall to see if at least some of the U.S. oil producers go out of business.

The Organization of Petroleum Exporting Countries (OPEC) at one time controlled an estimated 53 percent of the world’s total oil production. Today, that number has dropped to about 42 percent, according to the Energy Information Agency. Relief at the pump has come via the United States shale boom while OPEC pumps near record amounts of crude oil.

The geopolitical implications of this tug-of-war are far reaching; affecting the nuclear program in Iraq as well as the campaign against ISIS. Most OPEC members have their own interests in stabilizing the almost freefall in petroleum, with Venezuela and Ecuador parroting the need to protect prices. Libya suggested cutting 500,000 barrels per day from production.

While Saudi Arabia is expected to shoulder most of the burden, Iran has made it clear that it favors a cut in production up to 1 million but not a single barrel will be cut from Iran’s production. Sanctions on Iran have taken a toll, stripping the nation of more than one million barrels since 2012. The Iranian minister of oil emphatically declared that Iran’s production will not be cut “even by one barrel.”

Russia, the world’s top oil producer is seeking production cuts as well. Russia and Saudi Arabia met over the weekend to discuss cooperation in oil prices. It is also rumored Russia is considering joining OPEC in production cuts next year should the proposed cuts come to pass.

There is no real indication that the lower prices are making Vladimir Putin, in reference to the worst tension between Russia and the West since the Cold War, more compliant, but he is exploring his options. It has been reported that Putin met with Chinese leader Xi Jinping and signed a second supply deal. Those close to the agreement confirmed a gas route from Russia to China would be made as a sign of closer cooperation.

The depressing gas prices are stifling Russia’s top gas producer, Gazprom. With lower prices inhibiting Gazprom from investing in proper infrastructure needed to carry gas from Russia to China, handing Beijing a weapon has also became a tool of negotiation.

Many political factors are in play when it comes to recent gas prices. Whatever the reason though, car owners are enjoying the relief at the gas pump and are looking forward to it continuing through the holidays. The U.S. has the ball in their court right now with the boom in shale and is projected to increase output in 2015.

By Stevenson Benoit

Sources:
BloomBerg
Bloomberg BusinessWeek 1
Bloomberg Businessweek 2
Reuters

Photo by Upupa4me – Flickr License

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