If you’re planning to travel soon as your state allows you to, watch out for a new danger: the $3 per gallon gasoline. Fuel prices are on the rise, as oil prices broke through the $60 per barrel threshold amid renewed demand. In contrast, OPEC and Russia announced cuts in daily oil production while fracking production remains restrained.
National Average Creeping to $3 Per Gallon
According to the American Automobile Association (AAA), the US national average price for gasoline the past five days is currently at $2.87. It’s 23 cents higher a month ago and 75 cents higher a year ago. The last time US drivers experienced $3 per gallon gasoline was in 2014. However, prices flirted with near $3 levels in both 2018 and 2019.
According to Mizuho’s Director of energy futures Robert Yawger, the $3 gas might become standard by Memorial Day. “We've been trapped inside for a year. People want to get out of the house,” he added. In fact, some states already deal with prices above $3. Pennsylvania, Illinois, Arizona, Utah, Nevada, and California are among the states that are paying more than average.
Blame it On Biden
With President Joe Biden cracking down on fossil fuels last winter, critics are now pinning higher gas prices on this administration. In contrast, some industry experts insist that the issue with gas isn’t an effect of federal policy. “Make no mistake, prices would have gone up no matter who was in the White House. This is more about economic recovery,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
On his first day at work, Biden revoked the permit to build the Keystone XL pipeline, a network designed to bring oil from Alberta, Canada to Steele City, Nebraska. Also, he put on hold all oil and gas leasing in the Arctic and rejoined the Paris Accord on climate change. In addition, Biden deferred all new oil and gas leasing and drilling permits on federal lands He deferred all permit approvals for new permits on federal lands to the Department of Interior. Fortunately, the Interior announced they won’t renew the current 60-day suspension for new permits. “Some blame is being laid on Biden and the Keystone Pipeline but that has absolutely nothing to do with the price of crude or gasoline this year,” said Tom Kloza. He is the global head of energy analysis at the Oil Price Information Service.
De Haan remains surprised at how fast gasoline prices recovered from the pandemic. They’re now at levels comparable to prices before coronavirus brought the world to a standstill. Based on GasBuddy data on gasoline purchases, weekly US demand last week is only 1% higher than the week ending March 14, 2020. This is the week before the US announced the beginning of lockdowns. In addition, US driving directions, an indicator of renewed travel plans, rose steadily and are now above January 2020 levels. A similar query is undertaken in Germany, UK, and Italy showed driving interest remained lower. “There is a little more cabin fever this spring,” De Haan said. “The overwhelming odds are that we will at some point see the national average touch the $3 mark.”
Coming Soon: $80 Per Barrel Crude
Oil prices are quickly going back to pre-COVID levels as well. US crude hit a pandemic high of $66.09 a barrel last March 5. Considering that April 2020 prices were at -$37 a barrel, this shows a remarkable turnaround in less than a year. Despite increasing demand, some oil-producing nations scaled back on their quotas. Russia and OPEC both shocked the market by extending their announced production cuts at least until April. As a result, oil prices surged earlier this March. However, the V-shaped nature of oil recovery reared its head. Concerns over European vaccination rates dampened demand and brought prices down to $61.42 last week.
Still, investment banks see the inevitable rise of oil. Goldman Sachs predicts that the oil rally will eventually top $80 per barrel for Brent crude by summer. By that time, vaccine rollouts are at their peak and recovery programs are underway. “We view the recent sell-off as a transient pullback in an otherwise large oil price rally and a buying opportunity,” Damien Courvalin, Goldman's head of energy research, wrote last week.
Watch the CNBC News video reporting that gas prices are spiraling upwards as demand increases:
Do you agree that gas prices will go up fast as demand increases in the US? Or, do you think oil production will increase as demand increases as well? Let us know what you think. Share your comments below.