US Oil Prices Soar As Summer Kicks In

Summary

  • Oil prices are expected to rise further in the US as demand is set to increase with the onset of summer when Americans typically embark on vacations to beat the heat.

  • On Tuesday, the Organization of Petroleum Exporting Countries (OPEC) and other partner nations were expected to decide on their supply targets for the coming months.

  • US gasoline retail prices were up US$1.06 to US$3.02 per gallon YoY on May 24, 2021.

Rising oil prices over the past week have once again fanned inflation concerns in the US.

US gasoline retail prices were up US$1.06 to US$3.02 per gallon YoY on May 24, 2021. At the same time, diesel prices rose 86 cents to US$3.25 per gallon YoY.

Brent oil futures rose to nearly US$70 a barrel on Monday, May 31, the highest since March.

Oil prices are expected to rise further in the US as demand is set to increase with the onset of summer when Americans typically embark on their vacations to beat the heat.

In 2020, oil prices were low as demand declined due to the pandemic. This year, though, the demand is back with increased vaccination and the reopening of the US economy.

On Tuesday, the Organization of Petroleum Exporting Countries (OPEC) and other partner nations were expected to decide on their supply targets for the coming months.

The OPEC+ is expected to continue full supplies because of the increased demand in the US and Europe. However, the current oil prices may be affected if Iran resumes supplies to OPEC. In April, the group had planned to return to the level of 2.1 MBPD during the May-July period. 

Also read: Key Takeaways From US Federal Budget For Fiscal 2022

Meanwhile, the US has witnessed over a 14% increase in oil output in March this year, ahead of the rush season. The American Automobile Association expects a 60% increase in US travelers in 2021 than the previous year. In 2020, there were 23 million travelers in the US.

The US oil inventory, which regularly exceeded the demand for the last five years, had gone down due to weather-related outages this year. According to an industry estimate, US gasoline inventory fell about 10% to around 25 million barrels between Mid-February and March 9.

The shrinking inventory amid rising demand had pushed gasoline prices up, say experts. Also, the cyberattack on the Colonial Pipeline had disrupted supplies on the east coast in early May.

However, the world’s top oil-producing countries are likely to enhance their output with the rising global demand. The Middle East region accounts for one-third of the total global production.

Also Read: Why Do Markets Not React Much To GDP Data?

Iran Factor

Tehran is optimistic about returning to the 2015 nuclear sanctions deal after Washington revoked a Trump-era decision to pull out of the agreement. The accord with the world powers had allowed Tehran to resume trade activities in exchange for abandoning its nuclear program.

In 2018, the Trump government had pulled out of the international agreement after accusing Iran of continuing its clandestine nuclear program. But after taking office in January, President Joe Biden showed a willingness to remain in the deal.

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