Oil prices fell to a six-week low on Monday and gasoline prices are following suit, with AAA’s weekly average gasoline price retreating for the first time in three months.
Oil and gasoline prices have been on a tear, but the recent retreat for oil comes from the possibility that more supplies will hit the market and that sentiment is spilling over into the gasoline market.
According to AAA, the average price at the pump for gasoline on Monday was $2.95 per gallon, below last week’s $2.97. While they have pulled back, they are still 13 cents more than one month ago and 57 cents more than in the beginning of June 2017.
U.S. crude oil futures were down over 1% Monday afternoon and touched a six-week low during the session.
Data released last week from the U.S. Energy Information Administration showed that U.S. crude production climbed to 10.47 million barrels per day in March, a monthly record. Meanwhile, according to Baker Hughes, U.S. drillers added two oil rigs in the week through Friday, bringing the total number of active rigs drilling for oil to 861 – the most since March 2015.
Overseas, major oil producers are starting to consider increasing their output. According to Kuwait state news agency KUNA, over the weekend Arab oil ministers agreed on the continued need for Organization of the Petroleum Exporting Countries (OPEC) and other major oil producers to work together to balance supply.
OPEC meets formally on June 22 to set oil policy. It is expected to agree to raise output.
Saudi Arabia and Russia have discussed boosting output to compensate for supply losses from Venezuela.
In November 2016, OPEC agreed to slash oil production to 32.5 million barrels a day from 33.8 million per day to correct a global market oversupply that had previously pushed U.S. crude oil prices below $30 a barrel. The output cuts have worked, balancing the overall market supply.
Further output cuts from Venezuela, due to the country’s economic demise, and the possibility for Iranian oil exports to shrink due to U.S. sanctions have further supported prices.