Daily Independent (Ashland, KY)

Business

June 14, 2012

Outlook for gasoline prices: Going lower

Motorists have seen prices at the pump fall steadily since early April. After peaking around $3.93 a gallon, the national average price of self-serve regular has fallen to $3.54, as measured by AAA.

What's behind the free-fall? It turns out we have something of an oil glut. Consumers around the world are buying less fuel while oil producers, including the U.S., have continued to pump oil.

A recent survey by Platts found oil production from OPEC nations rose 40,000 barrels per day to 31.75 million in May.

The highest since October 2008

The May production marks a rise from April's output level of 31.71 million barrels a day and is the highest level since October 2008 when OPEC volumes averaged 32.26 million barrels. That's when, you will remember, the economy went into a nose dive.

"The number that really matters is the jump from January to May this year, which shows that OPEC output rose from 30.87 million barrels a day in January to 31.75 million barrels a day last month," said John Kingston, Platts global director of news. "This has occurred even as Iranian supplies were being squeezed by a drop in the number of customers willing to take its oil. We can now assume OPEC members at least will discuss at their upcoming meeting a possible paring of production. This scenario was almost impossible to fathom just a few months ago, as OPEC continues to surprise the world with its ability to put oil on to the market."

In fact, there's some dissension in the OPEC ranks over how much oil the cartel should be pumping. Iran and Venezuela, for example, accuse Saudi Arabia of undermining the price of oil by pumping too much of it.

Saudis think oil too expensive

But the Saudis, echoing many U.S. motorists' sentiments, argue the price of oil is artificially high. Remember, prices began to spike earlier this year when oil investors believed there was a risk of a confrontation with Iran over nuclear issues leading to a supply disruption. The Saudis have argued that oil prices should be below $100 a barrel for the overall health of the global economy.

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