A man stops to fill his car in a service station in Washington, DC, in November. Gas prices have dropped this spring, despite the fact that they generally increase at this time of year, largely due to the drop in oil prices. This allows drivers to save money and also lower goods.
Images Andrew Harnik / Getty North America
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Images Andrew Harnik / Getty North America
President Trump promised that during his presidency Petrol prices would drop and American oil production would explode.
One of these things happens.
Pump prices have indeed dropped, largely because the price of crude oil has dropped by almost 25% since the beginning of January. West Texas Intermediate, the American reference index, went from a peak of about $ 80 per barrel in mid-January to just under $ 60 today.
But just because American producers are Open the tap. Indeed, the prices are now low enough Latest survey data of the Dallas Federal Reserve.
Here is a ventilation of forces that get rid of oil prices, and what it means for individuals and the economy.
Prices create an economic uncertainty
Radical prices have shown concern that trade barriers could slow down the global economy.
The demand for oil is closely correlated with economic prosperity: when the savings are booming, companies open factories and people buy things and go from places, rise in oil consumption. When savings go, the demand for oil too.
And although environmentalists say that oil consumption must decrease if the world wants to achieve climatic objectives, demand should always increase this year – even with a trade war. The question is How much.
Analysts of Rystad Energy, a research company, said that a trade war extending until 2025 could make the expected growth of Chinese oil demand. Mukesh Sahdev, global manager of basic oil products in Rystad, wrote that the tariff situation is so atypical that the comparison of this year at last year “has become largely out of words”.
OPEC + puts more barrels on the market
Meanwhile, although there are concerns about a drop in petroleum demand, production should actually increase.
The OPEC of the oil cartel and its allies, collectively known as OPEC +, have made a series of announcements in recent months, each increasing the group’s oil production. More recently, on May 3, some members of the oil cartel who had previously volunteered to reduce their production announced that they would relax some of these cuts.
The news immediately sent the oil market down; Prices affected the 4 years of 4 years on Monday before recovering.
In a press release, OPEC + stressed that its decision is based on the “current fundamentals of the healthy market” – essentially, stressing that if fears of the future have led to a drop in oil prices, demand remains unshakable today.
Analysts think there is more than that. OPEC + member countries accept production quotas; When everyone sticks to them, he maintains the limited offer and high prices. But The data show that some members of the group have exceeded these quotas. This is a recurring problem for OPEC +; Each individual country is encouraged to produce more, even if the group as a whole benefits if it all produces less.
Before the last OPEC +rally, Clearview Energy Partners’ analysts predicted in a note that Saudi Arabia, OPEC +de facto chief, could urge the group to increase production and reduce prices “in order to put pressure on OPEC +member countries, notably Iraq and Kazakhstan to comply with the engines”.
And indeed, the group ordered an increase in production.
Meanwhile, Trump explicitly asked OPEC + to produce more oil to reduce prices – although it is not clear what influence could have had.
A boon to consumers and a blow to producers
The drop in oil prices means a drop in prices at the pump. Fuel prices are generally increasing in the spring, but fell in April and could fall more. This means more money in the pockets of American drivers.
The drop in fuel prices also reduces the prices of goods in general, because it makes shipment cheaper. Pantheon Macroeconomics estimates that recent oil prices drops will lead to consumer prices of approximately 0.3%compared to their other case.
But Pantheon also believes that this advantage will be canceled – at the national level – by the blow to oil producers, which will reduce expenses and hiring, sending undulations to the economy.
The United States is the largest oil producer in the world. And although in the United States is not part of OPEC +negotiations, they are very affected by OPEC +decisions.
The combination of OPEC + production prices and increased increases in sufficiently low prices to hinder American production. In fact, American oil producer Diamondback told investors this week That “it is likely that the production of onshore oil has peaked us and will begin to lower this quarter”.
This goes against Trump’s vision of an expanding American oil industry, summarized by his often repeated sentence: “Drill, baby, forest”.
It is a tension that has always been at the heart of the president’s energy policy. The low prices he has promised to consumers and the boom he has promised oil companies is simply incompatible.
