Oil prices were under pressure Friday, falling ahead of the Organization of the Petroleum Exporting Countries’ (OPEC) meeting in Vienna next week.
The sentiment is that the group will increase oil output, changing its strategy a bit after OPEC and key non-OPEC countries, including Russia, agreed to cut oil output in January 2017 to get rid of the excess supply that sent oil into a bear market with U.S. crude falling to around $30 a barrel.
As the market balanced, oil prices soared to more than 3-year highs in May, which triggered Saudi Arabia to consider producing more of the commodity. Prices have since pulled back a bit, and West Texas Intermediate crude oil, the U.S. benchmark, posted significant declines on Friday as traders looked to the June 22-23 OPEC meeting.
More crude oil on the global market could be good for American consumers, who are spending significantly more at the pump. According to AAA, consumers are spending $69 more a month to fill up compared to last summer. On average, gasoline expenses are accounting for 7% of an American’s 2018 annual income.
If OPEC does move to increase supplies it could mean more oil on the market to refine into gasoline, and that could lower prices. In fact, that could be a more likely option for lower gasoline prices than for Americans to reduce their demand.
According to the U.S. Energy Information Administration (EIA), consumer gasoline demand came in at 9.88 million barrels per day (bpd) for the week ending on June 8, the highest weekly estimate on record since the Energy Information Administration began keeping data on consumer gasoline demand.
The EIA’s latest reading is more than 900,000 bpd from the previous week’s estimate, signaling that motorists are embracing the summer driving season, even with relatively high gasoline prices. The national average for gasoline was $2.904 on Friday.
Meanwhile, according to Reuters, two of the world’s biggest oil producers, Saudi Arabia and Russia, are planning a leaders' summit this year for both OPEC and its allies. An OPEC source told Reuters that the summit could be developed into a proposal, perhaps leading to a long-term framework for cooperation between OPEC and non-OPEC nations. Another source told Reuters that the proposal would be discussed next week in Vienna.
Production in the U.S., which didn't participate in the 2017 production cut pact, has been on the upswing. According to Baker Hughes, as of Friday, there were 126 more rigs actively drilling for oil in the U.S. compared to a year ago.