Travel hungry Americans coming out of lock may need to budget for gasoline of $ 3 per gallon on their next road trip.
Prices at the pump are on the rise, pushed higher by oil prices reaching $ 60 a barrel, a surge of economic optimism, the restraint of the American frackers and unprecedented production cuts from OPEC and Russia. The energy rally was further stimulated by predictions on Wall Street of a new oil “supercycle”.
The national average price of gasoline has climbed 47 consecutive days to nearly $ 2.89 per gallon, according to AAA. U.S. drivers haven’t seen an average price of $ 3 per gallon since 2014, although it did get closer in 2018 and 2019.
“Gasoline at $ 3 will be the norm by Memorial Day,” said Robert Yawger, director of energy futures at Mizuho Securities. “We’ve been trapped inside for a year. People want to get out of the house.”
Some states are already dealing with $ 3 gas, including Pennsylvania, Illinois, Arizona, Utah, Nevada, and California.
Pain at the pump could cause political problems in the White House. President Joe Biden moved quickly this winter to respond to the climate crisis by crack down on the fossil fuel industry.
This has led some critics to try to place the “blame” for the rise in gas prices on Biden, even though energy industry insiders say the increase is not really a matter of federal policy. .
“Make no mistake, prices would have gone up no matter who was in the White House,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “It’s more about economic stimulus.”
Goldman Sachs: $ 80 gross is coming this summer
After being crushed by Covid in 2020, the oil market has been one of the biggest winners in the wave of reopening on Wall Street. U.S. crude hit a pandemic high of $ 66.09 per barrel on March 5, an incredible rebound from the April 2020 negative low of $ 37 per barrel.
OPEC and Russia kicked off the oil rally earlier this month, shocking the market with the decision to extend their dramatic production cuts by at least a month.
The V-shaped recovery in the oil sector ran into trouble last week. U.S. crude fell 6% to $ 61.42 a barrel amid concerns over the difficult deployment of vaccines in Europe.
But Goldman Sachs expects the oil rally to return as demand accelerates. The investment bank expects Brent, the global benchmark, to drop from $ 65 today to $ 80 by the summer.
“We view the recent sell-off as a transitional pullback in an otherwise large oil price rally and buying opportunity,” wrote Damien Courvalin, head of energy research at Goldman, in a report to clients last week.
Growing demand, moderate supply
De Haan is surprised at how quickly gasoline demand is returning to levels last seen just before the outbreak of the pandemic. According to GasBuddy data on gasoline purchases, weekly demand in the United States during the week ending March 20 was about 1% above the week ending March 14, 2020.
Road route searches in the United States have also recovered above January 2020 levels, according to mobility trends released by Apple. In contrast, similar research in Germany, the UK and Italy remains well below January 2020 levels.
“There’s a bit more cabin fever this spring,” De Haan said. “The overwhelming odds are that at some point we will see the national average hit the $ 3 mark.”
Beyond the desire to take road trips, the energy market is helped by a moderate American supply. The pandemic has dealt a heavy blow to America’s oil boom, with frackers drastically cutting production to stay alive.
Even with US crude above $ 60 a barrel, the country produces only about 10.9 million barrels of oil per day, according to estimates by the federal government. This is a decrease of 2.2 million daily barrels compared to the same period in 2020.
Of course, this also means that American producers have the capacity to pump a lot more if the prices get too high.
The Keystone pipeline debate
Tom Kloza, global head of energy analysis at the Petroleum Price Information Service, doesn’t think the national average will hit $ 3 a gallon this year due to high unemployment, remote working and reduced labor costs. travel to major sporting and entertainment events.
Either way, rising gas prices will fuel the rhetoric that Biden’s energy policy will hit American consumers in the wallet. On his way to the countryside, Biden had to deny repeatedly says his opponent that he would ban hydraulic fracturing.
But Biden acted quickly to deal with the climate crisis. On his first day at the office, he canceled Keystone XL pipeline, imposed a temporary moratorium on the leasing of oil and gas in the Arctic and decided to join the Paris Agreement on climate change.
At the end of January, Biden also imposed a 60 day suspension new licenses to lease and drill for oil and gas on federal lands unless Home Office officials approve them. Importantly, this policy only applied to new leases and permits, not to existing leases. Much to the dismay of climate activists, the Home Office said earlier this month that the 60-day suspension would not be renewed.
Yet energy analysts have dismissed the idea that Biden’s tough stance on fossil fuels is pushing gasoline prices up, at least so far.
“Some blame is placed on Biden and the Keystone pipeline, but that has absolutely nothing to do with the price of crude or gasoline this year,” Kloza said.
$ 4 gasoline could accelerate electric vehicle boom
Of course, if Biden takes steps to drastically limit U.S. production, it could eventually lead to higher oil prices down the line.
Prices are probably not yet at the level where they would eat away at demand by forcing drivers to cancel their trips. And it’s unclear what that tipping point would be given the enthusiasm for the reopening after the pandemic.
“The $ 3 gasoline is not going to scare anyone away,” De Haan said. “People are not going to hold back this summer. They are finally starting to feel better.”
Overview, the oil industry does not want to see prices soaring too high, as this would only accelerate the switch to electric vehicles.
“You don’t want to go there,” Mizuho’s Yawger said. “You are going to kill the golden goose.”