Home / Oil & Energy / General Energy News / Gasoline Prices Remain High And Could Go Higher, But There’s A Catch

Gasoline Prices Remain High And Could Go Higher, But There’s A Catch

Following seven months of rapid increase throughout 2021, the average price for gasoline at the pump in the U.S. hit a plateau over the past week. AAA reports the average nationwide price per gallon of regular gas on July 29 was $3.166, just 7/10ths of a cent above the July 22 price. It’s a dynamic that consumers would love to see continue as the summer driving season comes to an end in the coming few weeks.

The chart below from the U.S. Energy Information Administration (EIA) shows what gasoline consumers have experienced over the last two years, including the precipitous crash in gas prices corresponding to the global crash in crude oil demand that began in late February of 2020. According to AAA, the average price on July 29 2020 was $2.188, yielding a year over year increase of 97.8 cents per gallon. That’s a big hit on the pocketbook of the average American driver of gas-powered cars, which still represent more than 98% of all cars on the road today in the U.S.

EIA’s data, which goes through July 26, shows the price actually fell by 1.7 cents between July 19 and July 26. That’s not surprising since that time period starts with the precipitous 9% crash in crude oil prices that took place on July 19, after the OPEC+ group reached its temporary impasse on an agreement related to member nations’ export levels. It’s an interesting blip on this chart that demonstrates the real-time response U.S. gas prices typically have to changes in the price of crude oil.

The big question for consumers now revolves around where they should expect the price at the pump to go from here. The answer, now that the OPEC+ group has succeeded in re-stabilizing its agreement and extended its scheduled expiration date into December 2022, leans towards a continuation of the same steady rise of the past 12 months, but probably at a slower pace.

Many factors impact the direction of gas prices, but the single biggest one will obviously be the direction of crude prices. With the OPEC+ deal back in place, much of the potential volatility has been removed from the system, and there is general agreement that the supply/demand equation remains very tight. This week’s latest significant drawdown in U.S. crude inventories despite tapering demand for gasoline and jet fuel indicates that the market remains somewhat under-supplied.

This is one reason why analysts at Goldman Sachs continue to stick with their forecast of $80 oil prices by the end of summer, and even recently stated they see a potential upside premium to that forecast. Longer-term, another big concern Goldman and other analysts have relates to the massive under-investment by the upstream oil and gas industry in the finding of significant new crude oil resources since 2014. “With most of our expected summer demand gains already achieved and with headwinds growing from the delta COVID variant, we believe that the catalyst for the next leg higher in prices is shifting from the demand to the supply side, with upside risks to our price forecasts in the coming months as a result,” the Goldman analysts said in a note to investors.

The big wild card in all of this relates to the COVID Delta Variant, and the impacts economic restrictions could have on global demand in the coming months. The rising call from the Biden administration and some state governors for the implementation of new mask mandates likely wouldn’t have much impact on gas demand in and of themselves. But, as we saw last year in the nation’s initial response to the pandemic, the mask mandates were just a first step along the road to massive business closings and stay-at-home orders, which would likely collapse oil demand again if implemented globally.

This week’s strength in oil prices indicates that traders are not overly concerned about that eventuality at the moment. But it will be interesting to see how the market responds to Thursday’s expected announcement by President Biden of a new COVID vaccination requirement for federal employees that will be accompanied by new mask, testing and other mitigation requirements.

Thus, the only real potential consumers have for some relief in gas prices appears to be a potential collapse in oil demand related to re-implementation of draconian COVID restrictions. As we witnessed over the past year, that is an extremely high price to pay for a little relief at the pump. We should all be careful what we ask for.
Source: Forbes

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping