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An expensive year ahead in 2018

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Once the annual festivities surrounding the New Year are over and life gets back to normal, the year ahead looks to be an active one that holds the promise of its fair share of bumps at the gas pumps.

Building on the economic momentum of 2017, drivers appear ready to continue their ever-increasing appetite for gasoline, extending a series of month-to-month increases in consumption compared to the previous year, which was itself a record. Combined with increasing oil and fuel exports from the U.S to global destinations, unforeseen refinery disruptions or weather-related events like hurricanes or the cold snap now hitting the Great Lakes and Northeast, a more expensive year ahead is a given.

There are a series of other less known factors, too, which could see more tightness in supply and lead to higher pump prices. OPEC’s decision to continue oil output cuts with several other non-OPEC players, including Russia, is likely to place total output below forecasted global demand at some point in the middle of 2018. Unless U.S shale producers can effectively increase or match this output drop, look to oil prices rallying. Making oil accessible to North American markets is the emerging concern, too. Canadian heavy oil is the largest imported crude supplier to the U.S and is facing acute pipeline and rail-capacity constraints. This is no small matters as many refineries run heavy crude slates, making light shale oil irrelevant, regardless of higher record-breaking output.

The same concerns are also emerging for U.S. shale production. While U.S oil inventories in 2017 fell 100 million barrels, including floating storage, even Permian Basin shale oil production in Texas appears to have faced a setback, falling from 81 million barrels produced in September 2016 to 69 million barrels produced in the month of September past, according to the Texas Railroad Commission.

After several years of falling investments in oil exploration, 2018 is likely to be the first year when we begin to see the full effects of reduced capital expenditures of forward supplies. As gasoline and diesel demand accelerates, peak oil production is likely to ensue. Get ready for an unpleasant year at the pumps.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.

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