One thing moving markets

…is the decelerating price of crude oil – potentially leading to lower prices at the pump.

Recently, an organization of oil-producing countries known as OPEC+ decided to extend most of its oil production cuts through the end of 2025.¹ Following the announcement on June 2, oil prices fell, which could push down consumer gas costs — and perhaps even inflation, too.

Pump pressure

According to AAA, the national average price per gallon remains above $3.50 — an increase of nearly 50 cents since the start of the year. However, pump prices are still down from recent highs. In June 2022, the average price of gas hit an all-time peak of more than $5 per gallon.² 

Despite today’s shaky global oil market, oil prices have been retreating on relatively weak demand.³ Indeed, following OPEC+’s latest production cut, oil prices fell to a four-month low. 

Oil organized 

The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 oil-producing countries that supply about 60% of the global oil supply.⁴

By setting production targets for its member countries, OPEC+ seeks to manage the supply — and, by extension, price — of oil on the world market. These production changes generally have an immediate impact on the market and can also affect prices of oil derivatives, such as gas, showing up when consumers pay at the pump.

OPEC+ is currently reducing its oil output by 5.86 million barrels per day, or roughly 5.7% of global demand. To help offset lower-than-expected demand growth, the most recent decision will extend 3.66 million of those cuts through 2025.¹ 

What’s next? 

The price of oil often drops after OPEC+ cuts production, as these cuts are often seen as a sign of slower growth. In other words, OPEC+ sees lower demand for oil and cuts production to avoid an oversupply that could drive prices down even further. To many, cuts are a sign of weakness in the market.

Indeed, OPEC+ also decided to gradually phase out of 2.2 million barrels per day of voluntary cuts from October 2024 to September 2025, indicating a growing desire among members to increase output. This is despite global oil inventories continuing to build in April, leading traders to speculate the worst of the supply concerns keeping prices higher are behind us.⁵

There is always the possibility that oil prices tick back up, which are subject to geopolitical forces, but prices appear to be trending lower for the time being. In particular, the phase-out of voluntary cuts coming in October could keep a strong ceiling on prices, or perhaps even push them back to their December lows below $70 per barrel.

With oil prices on a downtrend, gas prices and inflation could adjust accordingly. 

And a few top headlines 

Second estimates for Q1 U.S. GDP showed the economy grew at 1.3%, compared to the previous estimate of 1.6%.⁶ 

• The downward revision was largely due to cooling consumer spending. This sign that the economy is slowing faster than previously thought could help encourage the Federal Reserve to cut rates sooner than later. 

Supply chain constraints are still bottlenecking growth for air travel, according to one major airline.⁷ 

• The ongoing supply challenges are leading to extended wait times for engine components, forcing airlines to keep using existing fleets and driving up costs. These could well be passed along to travelers in the coming months.

The U.S. Postal Service will raise the price of postage stamps by 5 cents starting in July.⁸ 

• This is the fifth increase in two years and ties the record for the largest-ever increase, bringing the cost of a First-Class Mail Forever stamp from 68 cents to 73 cents.

Searing summer temperatures are expected to lead to record-high electricity bills from June through September, according to the National Energy Assistance Directors Association.⁹ 

• U.S. electricity bills are forecasted to increase 7.9% to an average of $719 as increased air conditioner usage weighs on the grid.

What to be on the lookout for next week 

The Federal Open Market Committee (FOMC) will release its quarterly economic projections on Friday, June 12.

These projections will be delivered alongside the Fed’s final interest rate decision of the second quarter, and will provide a useful window into where its members see growth, unemployment, inflation, and interest rates headed through the rest of the year and beyond.

Given the ongoing uncertainty around interest rates and the timing of the first cut, investors will be closely watching for changes to the previous quarter’s projections, which penciled in three cuts by the end of 2024.¹⁰ It’s likely that the median estimate will come down, but how much they do will signal just how inclined toward cuts the central bankers are.

After the GDP’s downward revision and the most recent jobs report showing 70,000 fewer jobs added than expected, the Fed’s first-quarter projections for 2024 GDP (2.1%) and end-of-year unemployment (4%) could also be revised.¹¹ 

These quarterly projections force the central bank to take a long-term view, giving markets more information about the future economy policymakers are seeing.