Oil prices move up and down like the stock market, and it takes some time before those movements translate to consumers at the gas pump.
Even so, many motorists might have noticed gasoline prices have moved up in the last week. The AAA Fuel Gauge Survey shows the national average price of self-serve regular is $2.19 a gallon, up four cents from last week and 17 cents from a year ago.
The main reason for the slightly higher prices is last week's agreement by OPEC that its members will reduce their output in the coming year to shrink the persistent glut of oil on world markets. The move is aimed at pushing the price of oil above $50 a barrel, which would increase profits for producers while raising fuel costs for consumers.
“Traditionally this time of year gives way to lower gas prices as a result of cheaper to produce winter-blend fuel and less demand,” AAA said in a statement. “However, due to the agreement from OPEC it is still unclear if prices will retreat considerably ahead of the upcoming holidays.”
Can the agreement hold?
But OPEC historically has had problems enforcing its production cuts, and industry analysts are already pointing to what they say are cracks in the brand new, yet to be implemented agreement. MarketWatch reports that analysts are pointing out that OPEC oil production reached a record level of 34.2 million barrels a day last month.
Analysts say OPEC was producing nearly 1.7 million barrels a day more than the amount it has set as a target, beginning in January. They say when non-OPEC countries like Russia see these figures, they may be much less likely to curtail their own oil output, which must happen in order for supplies to go down. Meanwhile, Russia also stepped up production last month.
Reuters reports Russia produced more than 11 million barrels a day in November, its highest level in nearly 30 years. Between Russia and OPEC, there was enough oil produced in November to meet half of the world's demand.
While this may be bad news for oil producers, consumers stand to benefit, especially when they fill their tanks. The modest price hikes consumers have experienced in recent weeks, it should be pointed out, are all speculative.
Gasoline futures prices have been bid higher simply on the expectation that oil is going to cost more in the future. But if oil production doesn't actually go down, eventually that sentiment will change, and it will bring gasoline prices down again.