July 1, 2020

.Gasoline prices at the retail level rose $0.04 in the week ending June 29 to $2.17 per gallon.  After hitting bottom at $1.77 in the week of April 27, this is the ninth consecutive weekly increase in gas prices.  In South Carolina gasoline prices tend to about $0.25 below the national average or about $1.92  The EIA expect gasoline prices to average $2.07 per gallon this year so, if they are right, prices should be relatively unchanged in the second half of this year.

Crude prices were unchanged in this past week at $40 per barrel.

The reason prices fell in March and April 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 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, production has finally begun to drop and in it slowed to  11,000 barrels per day in the most recent week.  As the global economy recovers the demand for oil will once again rise.  But before production can pick up significantly, inventory levels will have to be reduced.

In the U.S. inventory levels have risen sharply in in recent weeks which is why U.S. producers have been sharply curtailing production.  As the global economy recovers those bloated inventory levels should shrink.

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Stephen Slifer

NumberNomics

Charleston, SC