January 12,2022

Gasoline prices rose $0.02 in the week ending January 10 to $3.30 per gallon.  In South Carolina gasoline prices tend to about $0.25 below the national average or $3.05.  The EIA expects gasoline prices nationally to average $3.06 per gallon this year and $2.81 next year..

Crude prices rose $2 in this past week to $78 per barrel after rising $2 per barrel in the previous week.  Global demand for oil is impressive as the global economy continues to recovery  At the same time an energy crisis in Europe is pushing natural gas prices higher around the world and pulling up the price of fossil fuels as well.

During the March and April recession last year  global economic activity came to a screeching halt.  The demand for oil has exceeded supply for most of this year as the global economy gathered steam.  Both U.S. and global supply have been increasing, and are currently roughly in line with demand.  If so, crude prices should remain fairly steady in the first few months of this year..

Last year’s recession caused oil production in the  U.S. to decline from about 13.0 million barrels per day to about 11.0 million.  Production has rebounded but to only 11.7 million barrels per day which is still well below its pre-recession peak. One of the problems is that the current administration is doing everything in its power to drive the fossil-fuel industry out of business which is curtailing the willingness and ability of oil producers to significantly boost production.  The EIA currently expects production to remain below its pre-pandemic peak of 13.0 million barrels per day through the end of 2023 when production is expected to average 12.4 million bpd.

.One of the consequences of closing down some oil pipelines and not approving others is that the U.S. is, once again, dependent upon imported oil — from OPEC in particular.  Beginning in 2017 or so as fracking and horizontal drilling began to take off, the U.S. gradually shifted from a monthly oil trade deficit shortfall of $6.0 billion to a modest oil trade surplus of about $1.0 billion per month by the end of 2019.   However, that deficit has once again shifted into deficit mode of about $1.0 billion per month.  Green energy sources like wind and power are fine when there is plenty of wind and water, but when the wind dies countries need alternative energy sources like coal and natural gas.

In the U.S. inventory levels have been falling sharply in recent months as the global economy has begun to climb.  Those inventory levels have fallen well below their 5-year average which is why t U.S. production needs to climb somewhat in the months ahead.

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Stephen Slifer

NumberNomics

Charleston, SC