OPEC Oil Supply Cut Could Prompt Higher Fuel Prices

It's possible recent low diesel prices may start heading back up, with news that oil-producing countries plan to cut crude-oil production. After seeing the price per barrel and overall oil consumption plummet since the start of the COVID-19 outbreak, the Organization of Petroleum Exporting Countries on April 9 announced members would cut oil production decrease by 10 million barrels per day. Expectations are also high that the topic will be discussed at the G-20 energy meeting scheduled for April 10.

Some outlets are reporting that oil prices increased as much as 12% Thursday after reports on the Saudi Arabia/ Russia deal hit the news wires. As of this writing, it was not clear if the newly brokered deal was dependent on U.S. participation.

Diesel and gasoline prices have fallen along with oil prices, as the COVID-19 outbreak has slashed demand worldwide, while for the past month, Saudi Arabia and Russia have been embroiled in a price war centered on crude oil, refusing to cut production.

Currently, diesel prices are their lowest since 2017. The Energy Information Administration, part of the U.S. Department of Energy, reported earlier this week that the national average retail price of a gallon of diesel was $2.548. That's the lowest since it dropped to  $2.472 per gallon in July 2017. The price of crude oil makes up about half of the price of a gallon of diesel, according to the EIA.

U.S. total oil consumption has dropped to a 30-year low. According to the U.S. Energy Information Administration’s Short-Term Energy Outlook for April 2020, global petroleum and liquid fuels consumption averaged 94.4 million barrels per day (BPD) in the first quarter of 2020, a drop of 5.6 million BPD from the same period in 2019. The report went on to predict that global petroleum and liquid fuels demand to decrease by 5.2 million BPD in 2020, before increasing by 6.4 million BPD in 2021.

The report also estimates that the COVID-19 travel restrictions and the ongoing disruptions to businesses and the overall economic will only make matters worse in the second quarter. U.S. motor gasoline consumption could fall by 1.7 million BPD from the first quarter of 2020 to an average of 7.1 million BPD in the second quarter, before gradually increasing to 8.9 million BPD in the second half of the year.