American drivers are seeing record high gas prices as the cost of crude oil soared amid halted OPEC negotiations about limits on production.
Gas prices hit an average of $3.13, the highest they’ve been in seven years and a 44percent increase on last year.
And drivers can expect gas prices to increase another 10 to 20 cents through the end of August, bringing the national average well over $3.25 this summer, according to AAA. Many fear the rising gas prices could worsen inflation and hamper the economy’s post-pandemic recovery.
Prices have soared as negotiations between the Organization of the Petroleum Exporting Countries (OPEC) ground to a halt.
OPEC, which has been limiting supplies of oil, had planned a meeting on Monday to develop a plan to release more barrels to match spiking demand as travel and business begin to recover to pre-pandemic demand.
But, in a rare public spat, the UAE and Saudi Arabia clashed over the proposals, which would see the UAE proportionally cut its oil production by 18 percent, while Saudi Arabia slashed its own output by 5 percent.
Under Saudi Arabia’s plan, OPEC raises output by two million barrels per day from August to December 2021, but would then extend remaining cuts to the end of 2022.
The UAE complained that extending the cuts to December 2022, from its current deadline of April 2022, would be ‘unfair to the UAE’.
Unable to reach agreement, OPEC cancelled Monday’s meeting.
Oil prices then soared to new highs, with Brent crude rising 1% to $76.96 a barrel, as investors debated whether the move meant a near-term deal for barrels was off the table.
The average price of a gallon of gas still sits at $3.13, a increase of 95 cents or 44 percent from the same period in 2020, when demand was low because less drivers were on the road during the pandemic.
American drivers are seeing increasingly high gas prices amid halted OPEC negotiations about limits on production
Gas prices began skyrocketed last week to the highest they’ve been in seven years as demand skyrocketed because more Americans were preparing to travel over the July 4 weekend
The cost of crude oil rose almost 60percent this year and is hovering around the highest prices it’s been in six years
Gas prices are currently highest in California, where it costs on average about $4.31 a gallon of regular fuel, according to AAA statistics.
And at the end of June, a gas station in downtown Los Angeles had gas prices set at almost $6 a gallon. Hawaii is directly below California, with the price of regular fuel currently averaging $4.03 a gallon.
West Texas Intermediate, the main grade of U.S.
crude, climbed to $75.23 a barrel on July 1 – their highest level in six years – before dropping 0.5percent to $74.68 following the cancellation of Monday’s meeting, according to a FactSet chart published by the Wall Street Journal.
Brent crude, the benchmark in global energy markets, was most expensive on Monday at $77.16 a barrel, the highest level since late 2018.
The last time crude was more than $76.40 and the national average gas price was at $3.25 was November and October 2014, respectively.
‘Robust gasoline demand and more expensive crude oil prices are pushing gas prices higher,’ said AAA Spokesperson Jeanette McGee in the company’s news release.
‘We had hoped that global crude production increases would bring some relief at the pump this month, but weekend OPEC negotiations fell through with no agreement reached. As a result, crude prices are set to surge to a seven year-high.’
The Biden administration is now urging OPEC to find a compromise that will increase oil production.
‘Administration officials have been engaged with relevant capitals to urge a compromise solution that will allow proposed production increases to move forward,’ a Biden official told .
The staffer also told the outlet it’s critical energy supplies stay in line with demand as the US and the world gradually recovers from the pandemic.
The impasse follows a July 4 weekend where Americans faced seven-year high prices at the pumps.
The impasse follows a July 4 weekend where Americans faced seven-year high prices at the pumps.
The average price of a gallon of gas stands at $3.13, up 95 cents, or 44 per cent, from 2020
A gas station in downtown LA posts gas prices of almost $6 a gallon at the end of June
OPEC hasn’t set a date for the next meeting and, if they don’t make a deal, allies likely won’t increase production in August which would mean oil supplies in the US will be below demand.
OPEC, The Organization of the Petroleum Exporting Countries, accounts for almost half of the world’s oil production and more than 80 percent of the world’s reserves.
Their mission is to coordinate petroleum prices to ensure the stabilization of the global oil markets.
The group is mostly made up of Middle East crude oil producers and is led by Saudi Arabia.
Speaking to the Saudi-owned Al Arabiya television channel on Sunday, Saudi Arabia’s Energy Minister Abdulaziz bin Salman called for ‘compromise and rationality’ in order to reach a deal on Monday, Reuters reported.
The UAE on Sunday pushed back against the OPEC Plus group, which includes non-OPEC producers like Russia.
The UAE said it supported a proposed gradual increase in production favored by Saudi Arabia, the group’s largest producer, and by non-member Russia.
But the UAE said it also wanted an increase in its own permitted level of production.
Despite the public clash, oil markets traded only modestly higher Monday. Crude oil rose 1.5 percent to $76.32 per barrel on the New York Mercantile Exchange, while international Brent crude rose 1.3 percent to $77.20 per barrel.
There are concerns that if an agreement cannot be reached, the alliance could break apart, potentially triggering a price war and swings in global oil prices at a time of uncertainty over future demand for oil due to continued lockdowns in parts of the world and the uneven distribution of vaccines worldwide.
Last year´s abrupt halt to travel and widespread lockdowns reduced global demand for oil, driving down energy prices as unused barrels of oil quickly filled up storage sites.
The OPEC Plus group agreed to a steep cut of some nine million barrels per day to keep prices from collapsing further.
Saudi Arabia went even further, voluntarily cutting even more of its own production to keep prices from falling.
In June, the kingdom produced just under 9 million barrels per day, compared to more than 10 million barrels a day before the pandemic.
As economies began rebounding and vaccine distribution picked up steam, the OPEC Plus group increased production so that daily cuts averaged around 6 million barrels per day.
Currently, the OPEC Plus alliance is producing some 37 millions barrels per day compared to around 43 million barrels per day in April of last year, at the start of the pandemic.
OPEC Plus has been meeting monthly to decide on adding more production. Yet two days of online talks last week did not produce an agreement.
Talks were scheduled to resume Monday, but hours later came an announcement that the session had been called off.
Over the weekend the UAE’s Energy Minister, Suhail al-Mazrouei, spoke to multiple media outlets about his country’s concerns.
On Sunday, the UAE Energy Ministry issued a rare statement, saying that it wants a higher baseline production level of its own that reflects the UAE’s actual production capacity rather than what it said is an outdated reference.
The UAE is currently producing around 2.7 million barrels per day under the OPEC Plus agreement, though it averaged around 3 million a day between January 2019 and terracotta panels (click the next post) March 2020, according to Refinitiv, a financial market data provider.
Analysts suggest the country can easily produce up to 4 million a day.
Per Magnus Nysveen, head of analysis at Rystad Energy research and consultancy firm, said for the UAE to get what it wants, Saudi Arabia may need to make further cuts to its output.
‘If the UAE were to have a higher quota going forward, it would only be Saudi Arabia that can reduce production on their side,’ he said, explaining that the kingdom has done voluntary cuts before and could be willing to concede in order to keep OPEC together.
Still, that could be a hard sell because both countries are in need of oil revenue to buoy their economies, which have been rocked by the pandemic and lower oil prices.
There are political differences between the UAE and Saudi Arabia, as well, to consider.
Speaking to the Saudi-owned Al Arabiya television channel on Sunday, Saudi Arabia’s Energy Minister Abdulaziz bin Salman called for ‘compromise and rationality’ in order to reach a deal on Monday, according to reports
Saudi Arabia and the UAE were closely aligned in past years, mirroring the budding relationship that had developed between Abu Dhabi Crown Prince Mohammed bin Zayed and Saudi Crown Prince Mohammed bin Salman.
So close were the two de-facto leaders that the two countries launched into a war in Yemen and cut ties with neighboring Qatar together.
In late 2017, the two nations announced a new partnership to coordinate in all military, political, economic, trade and cultural fields.
But in recent years, national interests have diverged.
The UAE dramatically downsized its footprint in the Saudi-led coalition battling Iranian-backed Houthis in Yemen.
The Saudis moved to rapidly restore diplomatic ties with Qatar earlier this year, but the UAE has yet to restore full diplomatic relations and continues to block Qatar-based news sites like Al Jazeera.
Meanwhile, Saudi Arabia on Sunday suspended all flights to and from the UAE, lumping it with Ethiopia, Vietnam and Afghanistan as coronavirus risks.
The kingdom has expressed concern over the fast-spreading delta variant, which has appeared in the United Arab Emirates.
In recent days, the kingdom changed its law for goods imported from Gulf Arab countries to exclude from a preferential tariff agreement imported goods produced by any Israeli-owned companies, as well as goods with any components produced in Israel.
Such products have proliferated in the UAE following the country’s normalization of ties with Israel.