May 20, 2020
Gasoline prices at the retail level rose $0.03 in the week ending May 18 to $1.88 per gallon. After hitting bottom at $1.77 in the week of April 27, this is the third consecutive weekly increase in gas prices. In South Carolina gasoline prices tend to about $0.25 below the national average or about $1.63. The EIA expect gasoline prices to average $2.00 per gallon this year so, if they are right, prices should climb by another $0.12 or so in the second half of this year.
Crude prices rose $8 per barrel in this past week from $24 per barrel to $32 as the global economy begins to reopen which should boost the demand for both crude oil and gasoline.
In recent years fracking and horizontal drilling have dramatically boosted U.S. production from 10,900 thousand barrels to 13,100 thousand barrels per day. But given the drop in the global economy and in the demand for oil, it has finally begun to drop and in the most recent week it slowed to 11,500 thousand barrels per day. The EIA expects drillers to shrink production to 11.7 million barrels per day in 2020.
The reason prices have been falling is primarily because the corona virus has caused global economic activity to come to a screeching halt. Demand dropped abruptly (the yellow line below), but production did not (the green line). As a result, supply exceeds demand by about 11.5 million barrels per day currently. The world is awash in surplus oil and producers and tradings are seeking storage anywhere they can find it. Indeed,oil tankers are being filled but with nowhere to go. This cannot continue.
In the U.S. inventory levels have risen sharply but finally edged lower in the most recent week as demand seems to be picking up amidst dramatic production cuts around the globe.
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