Oil and Gas

Seasonal highs expected just in time for Memorial Day

Schneider Electric’s Brian Milne analyzes the outlook for end of spring gasoline prices

Gasoline and Refined Fuels

Will crude prices top $50/barrel, or are we headed for another leg down in the volatile oil market?

Memorial Day weekend is the unofficial kickoff to peak gasoline consumption. As the summer months welcome more vehicles on the road, expect to pay more at the pump. Fortunately for us drivers, we will still pay dramatically less at the pump than a year earlier.

As we head towards the holiday weekend, we are seeing the potential for seasonal highs for crude oil and gasoline. That expectation is based on several scenarios.

U.S. Crude Production and Gasoline Demand

While domestic output slipped and we ended April at the lowest output rate since September 2014, a higher crude price would reverse the production downtrend. There continues to be, however, strong demand for gasoline in the U.S. so far this year. While this is a key component in rebalancing the market, high prices could slow the growth rate.

OPEC

Just a couple of days after the Memorial Day holiday on June 2, OPEC will hold its 169th meeting when the Vienna conclave could take action on production. The meeting follows the failure to reach an agreement in April at Doha, Qatar, and a change in Saudi Arabia’s oil minister. Meanwhile, Iran continues to ramp up output post sanctions, while there’s instability and uncertainty in Iraq, Nigeria, Libya and Venezuela.

U.S. Dollar

Recent weakness in the U.S. dollar supported crude strength in early May, although that weakness could reverse when the U.S. Federal Reserve meets in mid-June to discuss interest rates. Still, the market doesn’t expect a rate increase amid worry over global economic headwinds and after the U.S. economy experienced slow growth during the first quarter.

Market Rebalance

While global production and demand are expected to balance later this year or in early 2017, the outlook depends heavily on lower U.S. production and strong growth in demand. However, the vast oversupply globally will take time to work down and limit any price advance.

About Brian Milne

Brian Milne has been involved in energy for 20 years as a journalist, editor and analyst covering all types of US energy markets. He is the editor of Schneider Electric’s MarketWire—a real-time market and news service focused on US oil product markets and relevant news and analysis. Milne is frequently quoted in newspapers and trade journals, including the Wall Street Journal, Barron’s, USA Today, and MarketWatch.

 


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