The latest data from the U.S. Energy Information Administration (EIA) showed that the average cost for Regular gasoline in America rose over the past week to $2.31 per gallon. That was the fourth weekly increase in a row but the price consumers are paying at the pump is still nearly 4 percent below the 2016-to-date high of $2.40 per gallon hit in June. Regionally, the cheapest gas in the country can be found in South Carolina, where a gallon of Regular costs just $2.06 on average. Residents of California as usual have to pay the most in the continental U.S. for Regular ($2.72/gallon), and San Francisco is again the city with the nation’s highest average price ($2.87/gallon).
The latest uptick in the cost of gasoline is related to the price of crude oil finally being able to firmly break above $50 per barrel. This has occurred due to an agreement by OPEC members made in late November to cut global oil production in 2017. If non-OPEC countries such as Russia also participate in the production cut, supplies would be further strained and the price of oil could surge even higher. This scenario may be exactly what many asset managers are betting on since hedge funds recently raised their combined net long position in crude oil derivatives to the highest level since 2014. However, there is also a possibility that several OPEC countries will not strictly adhere to the production pledge. Such doubts arise because oil is the only source of income for many of these nations, which incentivizes them to pump out as much oil as possible. All of this uncertainty means that the price of oil is likely to remain volatile in the near future. If the trend continues upward, though, economists will be watching to see if the higher prices at the pump start to drag on consumer spending, especially since cheaper gasoline has provided only a moderate boost to retail sales.
Sources: U.S. EIA, DShort, GasBuddy, Bloomberg, Twitter, The Economist, Reuters, CME, ICE, CFTC
Post author: Charles CouchDisclosures