If the past week is any indication, June oil and gas prices are about to embark on quite the roller coaster. A week ago Tuesday, oil was riding high after several days of gains, clocking in at over $72 a barrel for the U.S. benchmark WTI (West Texas Intermediate) oil, 72 hours later, as most prepared to head out for the Memorial Day long weekend, it lost $4.25 a barrel, and by the time energy markets closed out the day this past Tuesday, it fell another $1.15, good enough for an 8% loss in just 3 trading sessions.
Gasoline, too, did not escape the vortex, dropping nearly 12 cents a gallon even though average pump prices across America approached, but did not breach, the $3 a gallon threshold. Instead, refined products have made something of a recovery, back up 4 cents since Tuesday, driven by growing exports to Latin America, particularly Mexico. The likelihood of pump prices crossing above the $3 psychological barrier remains real, but not likely, at least in the next week or so. The bigger question remains is what OPEC and Russia will do at the preliminary meeting on June 2nd, and then again on June 22.
The main reason for oil’s correction at the end of last week had much to do with Russia’s Energy Minister, Alexander Novak and Saudi Arabia’s counterpart, Khalid A. Al-Falih, musing that since the global supply of oil product was in sync with demand, perhaps the time had come to open the production taps. At the very least, the continued drop in output by Venezuela and the re-imposition of trade sanctions by the U.S. on Iran warranted the possible action, according to them. However, markets, especially financial speculators, reacted decisively to the hints and began dumping oil shares as quickly as possible, thus accounting for the near panic sale of oil futures last Friday.
Clearly, neither Russia nor Saudia Arabia could have imagined their musing would have resulted in a widespread selloff which many saw as a major correction of the deflating of the energy bubble. By Wednesday the Russian central bank took the unusual step of issuing a warning that such a drop in oil prices towards the $60 range would harm the Russian economy. For its part, Saudi Arabia played down the remarks suggesting the decision to increase quotas would only be done in consultation with other members.
While the days ahead for the June meetings for OPEC and its non-OPEC allies will continue to enrapture markets and support ongoing volatility at the gas pumps, an emerging trade dispute has been made no easier by yesterday’s decision by the State Department to impose tariffs on Canadian, European, and Mexican steel and aluminum. Such decisions are likely to steepen the turbulence in energy commodity prices as OPEC and U.S protectionist moves are promising to keep economic uncertainty and instability on the front burner.