Opinion: Why a Cubs Fan Is Optimistic on OPEC

As gas prices defy seasonal decline, which signs point to a production deal?

BOSTON -- Many motorists have noticed this autumn that gas prices aren’t going down as forecast, but instead are rising as the Organization of the Petroleum Exporting Countries (OPEC) mulls cutting oil production, and due to supply outages as a result of the Colonial Pipeline’s leak and shutdown in September.

It’s the first year in at least the past five that gas prices between Labor Day and mid-October have risen, and as of Oct. 14, the national average for a gallon of gasoline stands more than 5 cents higher from where the average stood on Memorial Day ($2.197). Last year, motorists saw a 15-cent decline during the same time period, and in 2014, the decline was even larger: nearly 30 cents.

So what gives this year?

The main culprit I blame is OPEC. While gas prices stood lower in mid-September than they did on Labor Day (by a mere 2 cents), OPEC’s ramblings in late September began the rebound in crude-oil prices. A barrel of West Texas Intermediate crude oil closed at just $43.62 per barrel Sept. 16, nearly $5 per barrel lower than in late August. Oil prices were moving lower and gas prices were following, until chatter emerged that OPEC and non-OPEC countries were on solid footing for a possible oil production cut.

While one has gotten used to OPEC’s timely “chatter” of cutting oil production (this time, the chatter surfaced as oil prices were trending lower and during a time of year when demand in the world’s biggest oil consumer wanes), this time around, rumors swirled that even Iran and Russia were considering participating in a possible production cut—a big surprise.

To gain the support of Iran, a country that has been feverishly pumping out oil as sanctions have eased, and Russia, the world’s largest oil producer, was huge. The two previously had strongly suggested they would not participate in any sacrifice to help oil markets rebalance after years of rampant supply flooding the market. What changed? Is this a realistic possibility? Let’s discuss that.

To gain the cooperation of Iran, which seeks no cap on its own oil output, and Russia, whose recent military operations could use solid funding, what’s at play? Eyes are on the Saudis. Iran likely would cooperate, but only if OPEC formally allows their own production quota to rise. It would likely mean the Saudis would have to cut their own, with additional cuts coming from Russia, whose budget relies on a major rebound in oil prices.

But will the Saudis, who are struggling to assert their dominance in the Middle East, cooperate? That’s the big question, and so far, the OPEC member isn’t building much confidence in its desire to do so. Just a week ago, the Saudis cut oil prices for customers in Asia for November delivery, flying in the face of possible cooperation. Does the market want rebalancing so badly that it’s ignoring crucial red flags for a possible deal?

Much lies in the hands of Iran, Saudi Arabia and Russia as OPEC prepares to meet later this month. Sources say that some non-OPEC members have been invited to the meeting. No matter the outcome, whether formal agreements are made or not, this analyst needs to see some concrete evidence to be satisfied about a cut.

And the market likely will too. Without tangible evidence of a broad oil-production cut from both OPEC members and nonmembers, oil prices are likely to sag again this winter, and with them, gas prices. But if something magical happens in Vienna, and data backs up a production cut, many motorists are likely to be facing gas prices this winter that fail to breach the $2-per-gallon average, with prices rebounding to the mid or upper $2-per-gallon range by next summer.

As for my projection of what will happen: I'm a Cubs fan. While I’ve been a pessimist much of the past few years, I do find slivers of optimism, especially this year, at the same time oil markets are looking for the same.

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