Hard to believe we’re only four weeks from the end of the year, but with a strengthening global economy and an agreement by OPEC and non-OPEC oil producing countries to extend their crude output for a full year, a picture now emerges that filling up at the pumps in 2018 will indeed be more expensive.
Momentum on the economic front as well signals a likely increase in demand for fuel, especially in the U.S. Just yesterday, the U.S. Commerce Department stated that consumer spending, which accounts for two-thirds of economic activity, rose a third of a percent last month after rising almost 1 percent in September. Helped by rising jobs numbers and a bump in purchases in the aftermath of Hurricanes Harvey and Irma, disposable income continues to strengthen, increasing 0.4 percent last month, matching the previous month. Wages too are escalating at a 0.3 percent rate while more appear to be saving. At $457.3 billion in October vs $422 billion the month before, personal/consumer balance sheets are strengthening, especially as labor markets continue to tighten with unemployment at 4.1 percent.
Other countries are also fairing at or better than what economists had projected at the beginning of 2017, including Canada, France, Japan, China and Germany. Emerging nations too are showing strong signs of growth and economic progress, which brings us to oil and prices at the pumps.
A pattern for 2018 seems to be emerging in which, demand for oil aside, refined products and a throttling of oil supplies will lend support to higher pump prices globally. Beyond government attempts at renewables, carbon taxes, biofuels, emissions caps, enhanced fuel efficiency and incentives to direct consumers to alternative means of transport from public to electric vehicles, 2018 is going to be a year of heightened interest in fuel prices. As oil moves back towards some semblance of supply and demand balance, it is the differing dynamics of refined products like gasoline and diesel that point towards an expensive year ahead. Extending from the example we are seeing this fall, cheaper pump prices may continue to be a challenge as the new normal for oil reaches and perhaps maintains the $60 threshold compared to the $40 range seen throughout much of 2015 and 2016.
OPEC limits to U.S. oil production, the regional limitations of some refinery hubs, unexpected curve balls tossed out by mother nature or even geopolitical tensions, can’t be dismissed out of hand either.
For 2018, the driver’s best hedge against inevitable price spikes is the GasBuddy app. Think of it as the Christmas gift that keeps on saving you money.