Summertime Oil

Whoever said, “It’s summertime, and the living is easy,” probably didn’t own a car. Gas prices tend to surge during the hot months, and this year seems unlikely to prove an exception, according to a recent Credit Suisse report. Inventories are expected to be lower-than-normal as some OPEC members have been plagued by falling production.

The cartel, which accounts for about one third of the world’s oil output, will need to boost output significantly in the second half of the year in order to meet growing world demand, according to the International Energy Agency. Add to that the political X-factor of potential instability in oil producers Iraq, Venezuela and Nigeria, and benchmark Brent oil futures have the potential to move $10 a barrel higher than Credit Suisse’s base-case forecast of $110 a barrel this summer.

“Not much has to go wrong for oil to enter an upward spiral,” analysts Jan Stuart and Johannes Van Der Tuin say in the report. One source of potential relief for summertime drivers: the U.S. could release emergency supplies from the Strategic Petroleum Reserve for the first time since 2011.

First published in The Financialist in 2014.