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The Organization of the Petroleum Exporting Countries (OPEC (opens in new tab)) and its partners took the oil market by surprise over the weekend when they announced another cut to their combined crude oil exports. The moves will take about 500,000 barrels per day of production off the market, which comes on top of similar cutbacks OPEC and its allies have made in recent months. Oil prices shot higher on the news, with benchmark West Texas Intermediate crude spiking to $80 per barrel. Just a couple of weeks ago, WTI was trading in the $60s, dragged down by turmoil in financial markets.
OPEC appears concerned about oil demand taking a hit in the United States and other Western nations later this year, as higher interest rates weigh on economic growth and a possible banking crisis makes financial markets jittery. But for now, demand appears to be solid, so the reduced output is likely to push oil prices higher. We look for WTI to trade between $75 and $85 per barrel this spring, and possibly spike even higher if any further disruptions to supply hit the market.
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Gas prices, which had been holding fairly steady, now appear poised to push higher, due to costlier crude oil and the usual springtime increase in demand for fuel as more Americans hit the road for spring vacations. The national average price of regular unleaded is up to $3.51 per gallon, from $3.44 a week ago. We look for the national average to rise to at least $3.75 later this spring, and possibly threaten $4 if oil prices keep rising. Diesel, now averaging $4.20, is actually down a few pennies from last week, but it figures to rise this spring along with gas prices.
Unlike oil, natural gas prices remain deeply depressed, with the benchmark gas price recently trading a bit over $2 per million British thermal units, versus last year’s peak of about $9.50. The mild winter in both the United States and Europe kept gas demand relatively muted, and now the arrival of spring warmth means demand is even weaker. Stockpiles of gas in underground storage are above normal for this time of year, which further weighs on prices. We look for gas to trade a bit above $2 per MMBtu this spring, and to stay relatively cheap until summer weather causes electricity demand to rise.
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