Warmer weather usually means more people getting out and driving – to stores, restaurants, baseball games or sometimes, just to drive. Projections that gas prices could soon fall below $2 per gallon would usually be cause for celebration. But these aren’t usual times, are they?
The reality is the implications for the U.S. economy are unclear. They depend on a range of unpredictable events in the months ahead.
But first, here’s what we do know. Coronavirus has dampened demand. Curtailed production in Chinese factories, cancelled conferences and less travel have decreased consumption. The International Energy Agency recently reported that oil consumption for the first quarter of 2020 is 2.5 million barrels per day fewer today than it was a year ago. The agency projects global oil demand will fall for the first time since 2009.
With demand slumping, conventional thinking was that the Organization of Petroleum Exporting Countries and Russia would agree to cut production in an effort to prop up crude oil prices. Petroleum revenues account for a sizeable chunk of these countries’ budgets.
However, for reasons not fully understood, Russia balked at the latest round of production cuts. One theory is that prolonged supply from Russia and OPEC nations would squeeze out U.S. production. Another theory is that production cuts will cede more opportunities to their American competitors to fill that gap. And yet another theory is that Russia simply wants to flex its muscle and capture more of the market share, irrespective of the costs they incur.