This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the market dynamics that are impacting oil prices and adding to concerns about broader inflation and economic growth:
Oil prices have increased more than 30% since late June, driving up transportation costs for consumers and businesses and putting financial markets on edge.
On September 27th, West Texas Intermediate crude — the U.S. benchmark for oil prices — topped $93 per barrel, the highest level since August, 2022. Brent crude (the global oil benchmark) rose above $96.
As usual, gasoline prices have followed suit. On September 27, the national average price for a gallon of unleaded gas was $3.83, up from $3.75 a year earlier.
The price in California, the most expensive state for gasoline, averaged $5.89 per gallon.
Tight Oil Supplies
Oil prices are sensitive to shifts in the delicate balance between supply and demand in the global market. Much of the third quarter’s increase has been attributed to a combination of record-high global demand and coordinated supply cuts. On September 5th, Saudi Arabia and Russia announced the extension of voluntary production cuts (1.3 million barrels per day combined) through the end of 2023. These cuts, which began in June, are on top of cuts that were previously put in place through 2024 by the Organization of the Petroleum Exporting Countries (OPEC), along with Russia and other allied oil producers (dubbed OPEC+).
In total, supply cuts are expected to reduce global crude inventories by 3.3 million barrels per day in Q4 2023.
OPEC is a coalition of 13 member countries, led by Saudi Arabia, that regulate their output to support oil prices. OPEC joined forces with the 10 OPEC+ countries in 2016 so they would have more power to influence prices. The two groups produced about 59% of the world’s supply of crude in 2022.
Even so, OPEC does not have the iron grip on the oil market that it once wielded. Due to advances in shale drilling methods, U.S. oil production has more than doubled since 2011. The United States has been the top oil-producing nation since 2018 and was responsible for…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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