May 12, 2021
Gasoline prices declined $0.07 in the week ending May 10 .to $2.96 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.71. The EIA expect gasoline prices nationally to average $2.68 per gallon this year and $2.59 next year..
Crude prices rose about $1.00 in this past week to $65 per barrel.
During the March and April recession last year global economic activity to come to a screeching halt. Demand dropped abruptly (the yellow line below), but production did not decline as quickly (the green line). As a result, supply exceeded demand by about 7.5 million barrels per day in the second quarter (the blue bars) and inventory levels rose. However, in the quarters since then inventory levels have declined . But now the EIA expects demand to exceed supply for the next several months as the global economy gathers steam. If so, crude prices could climb somewhat during that period of time.
In recent years fracking and horizontal drilling dramatically boosted U.S. production to 13,100 thousand barrels per day. But given the drop in the global economy in the spring of last year and in corresponding drop in the demand for oil, production fell sharply and is expected to average only about 11.0 million barrels per day in 2021.
In the U.S. inventory levels rose sharply during the recession which is why U.S. producers sharply curtailed production. But now as the global economy has begun to climb those inventory levels are roughly where they should be.
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Stephen Slifer
NumberNomics
Charleston, SC
Steve, I am loving the low gas prices. Car dealers are too I would assume.
…Darrel
Stephen, I find it fascinating that the costs for oil fracking have been reduced almost in half and you predict costs will soon be even lower. If OPEC does not change course, gas prices could remain low for quite some time into the future. On the other hand, if OPEC does reduce its oil flow, other sources will increase and the results could mean continued lower prices at the pump. Fascinating. Darrel
Hi again,
I have been trying to tell people that oil prices are going to be lower permanently for the reasons you just outlined. All those wells that have been closed since October 2014 are, in my mind, acting just like oil storage facilities. They can be reopened with very little cost as needed. We used to think of oil as trading between like $80-110 per barrel. The range today will still be wide, but I would take a crack that the new range should be something like $30-60. We have de-fanged OPEC. Unfortunately, what I don’t know is how they will choose to respond. These lower oil prices are hurting every OPEC and non-OPEC oil producer — including the Saudi’s. I think their game is to push prices low enough to drive the frackers out of business. But thus far technology has improved so quickly that the frackers cost of production has fallen by about 40% or so in the past year. And I see no reason to think that the technological advancements are necessarily going to stop now. Certainly is fun trying to figure all this out!
Steve
Steve- I think we all love low gas prices, but I find one thing interesting. If I drive from Wadmalaw to IOP I will pass 20+ gas stations and there is maybe a 10 cent difference between the lowest and highest price for Regular, but those same 20 stations might have a 30+ cent difference for diesel. They must all pay about the same price at wholesale; do they just not feel they have to be competitive for other fuels besides Regular gas? As a diesel user I really have to shop around. John’s Island is usually the cheapest, by the way.
Good morning Johnny,
Thanks for your comment. Being a gas user as opposed to diesel I only pay peripheral attention to diesel prices. I have noted that they seen really high for a product that is not refined as vigorously as gas prices. Your point strikes me as being entirely reasonable — less competition. When you get out on I-26 or I-95 and see those big truck stops like Love and some of the others, how are diesel prices there? More competitive? Diesel prices obviously matter to the trucking community.
I do not pretend to be a great oil and gas expert. My primary concern is are those prices going up or down, and how quickly. And how quickly will that boost or lower the inflation rate. I do believe that the fracking and horizontal drilling here in the U.S. has changed the entire ball game. The days of $100 oil are over. My guess would peak that peak crude prices today are about $60. Anything higher than that will stimulate oil drillers here in the U.S. who will quickly fill in the production shortfall.
Thanks for your comment.
Steve