Oil prices are in turmoil right now. Here’s what you need to know: NPR

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Gas prices are displayed at a Chevron station on June 14 in Los Angeles. A meeting of the oil cartel known as OPEC + ended in drama, leading to intense volatility in crude prices.

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Mario Tama / Getty Images


Gas prices are displayed at a Chevron station on June 14 in Los Angeles. A meeting of the oil cartel known as OPEC + ended in drama, leading to intense volatility in crude prices.

Mario Tama / Getty Images

Oil prices have been rising steadily for months. You’ve probably noticed an important consequence: Average gasoline prices have peaked in seven years.

As early as last week, oil prices were expected to stabilize or gradually increase – until an OPEC + meeting that was supposed to be routine ended in an unexpected deadlock, without any agreement on what to do regarding oil production.

Now analysts are bracing for anything from a spike in prices to a fall in prices. As millions of Americans hit the road, there is simply no certainty as to where the crude is going.

Here’s what you need to know about oil price volatility:

Oil demand is finally coming back

Last year, as the coronavirus pandemic spread around the world, global demand for oil fell remarkably rapidly. People have stopped driving and stealing. The markets have been completely disrupted.

Oil producers have therefore cut back on output – including a historic cut in output from the group of countries known collectively as OPEC +, which includes the major producers in Saudi Arabia and Russia.

Now, demand is returning as the United States, China and some other parts of the world reopen as the impact of the pandemic diminishes.

Commuting, vacation flights, and car trips all increase the demand for fuel. In the United States, a record number of people hit the road on the weekend of July 4, according to AAA.

But oil producers always pump less oil

One of the main reasons for the supply-demand mismatch is that OPEC + has taken a very gradual approach to getting the barrels back to market. This is intended to keep prices high, increasing the incomes of oil producing countries.

Meanwhile, US producers have also pumped less than expected as their focus is instead on money for investors. (This was a surprise to everyone, as the shale area is renowned for exuberantly producing oil when prices rise.)

The result is a totally different market from a year ago, a market that steadily drives up prices.

Crude prices fell sharply last spring, but have risen steadily in recent months.

US Energy Information Administration


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US Energy Information Administration

“We’ve seen a bit of a pivot, and now we’re actually looking at, well, what’s going to happen if there’s a supply shortage?” says Louise Dickson, senior analyst at Rystad Energy.

Then OPEC + got together and things got interesting

OPEC + members gathered for their monthly meeting last week. Almost everyone expected them to gradually increase their combined output, but not to the point of causing prices to drop. This would serve the best interests of the group and would have been in line with what the cartel has been doing recently.

Instead, the meeting turned into a drama as the UAE wanted to be allowed to produce more oil individually, which Saudi Arabia opposed. RBC Capital noted that there are “seemingly Shakespearean elements to this drama,” suggesting a rift between two crown princes who were once extremely close.

Whether it was geopolitics, economics, or the interpersonal intrigue driving the dispute, the powerful cartel found itself at an impasse. After days of talks, the meeting was called off indefinitely – with no deal or definite plan to meet again.

This means that the imbalance between supply and demand is expected to increase even more than expected. You would expect this to drive up oil prices. But the real consequences were more complicated because …

People don’t know what this means for OPEC +

The OPEC + drama created two completely opposite concerns.

If the cartel doesn’t strike a new deal to increase production and the current deal stays in place, that would push prices up – some analysts see $ 90 a barrel for oil as a possibility.

Such a peak would not be good for many economies around the world. This would cause gas prices to spike and hit many oil-dependent sectors, such as airlines.

On the other hand, if infighting causes OPEC + to completely abandon its current production cuts, there could be a general melee that results in a your of oil to flood the market. This would bring prices down – potentially dramatically – in a matter of months, which could cause chaos for oil producers.

Brent crude prices rose and then fell dramatically over the past week. (Weekend dates are not displayed.)

Nasdaq and associated press


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Nasdaq and associated press

The two results couldn’t be more different. And the uncertainty as to what might happen has created some interesting days in the oil markets. Global crude prices hit a multi-year high on Monday after news of the no deal was announced. Then they plunged Tuesday and Wednesday, wiping out weeks of gains.

And of course, there’s always the possibility that OPEC + will announce a deal that lands somewhere in the middle and potentially stabilizes prices. In fact, many analysts believe this is the most likely outcome, despite the lack of public progress in this direction, because …

There’s a ton of pressure for compromise

In early 2020, OPEC + derailed prices thanks to a price war between Saudi Arabia and Russia. But that was quickly followed by the landmark production cut deal, which is widely credited with rebalancing crude markets and supporting prices for over a year.

Now, there is a lot to be done on whether OPEC + can strike a deal again to keep the markets in balance.

A price spike or collapse would be bad news for OPEC + members. And a peak would be particularly worrying for global oil consumers, given that prices are already quite high.

In the United States, the Biden administration is clearly concerned about the possibility of gas prices rising even further.

Under former President Donald Trump, the White House has become unusually involved in the OPEC + negotiations, and President Biden appears to be continuing the tradition – the White House has spoken directly to several OPEC members and is asking for a compromise to increase production.

This is another sign of how quickly things can change in the oil industry. Just a few years ago, many oil experts questioned whether OPEC was a has-been, issuing edicts from its headquarters in Vienna with no real impact on the oil markets.

Nobody asks that now.

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