September 15, 2021
Gasoline prices fell $0.01 in the week ending September 13 .to $3.17 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.92. The EIA expect gasoline prices nationally to average $2.87 per gallon this year and $2.73 next year..
Crude prices were about unchanged in this past week at $72 per barrel. Hurricane Ida which slammed the Gulf Coast last week may have boosted crude prices to some extent as production in the Gulf of Mexico was curtail. But at the same time there is a sense that the rapid spread of the virus in China and associated lockdowns that are being imposed will curtail weaker demand for oil in China and throughout Southeast Asia.
During the March and April recession last year global economic activity came to a screeching halt. The EIA expects demand to exceed supply through the end of this year as the global economy gathers steam. Both U.S. and global supply is increasing, but not as quickly as demand is expected to climb. If so, crude prices could climb somewhat now and yearend.
Last year’s recession caused oil production in the U.S. to decline from about 13.0 millions barrels per day to about 11.0 million. It has gradually rebounded to about 11.5 million barrels per day but Hurricane Ida curtailed production in the Gulf of Mexico in the past two weeks. That is obviously a temporary drop-off and production should rebound fairly quickly. As the recovery gathers steam globally this year and next, production is expected to edge upwards and average 11.1 million barrels per day in 2021 and then climb to 11.8 million barrels per day next year which is still well below its pre-recession peak. But given that excessive demand globally is likely to persist through the end of this year, it appears that U.S. and global producers need to step up the pace of production.
In the U.S. inventory levels have been falling sharply in recent weeks as the global economy has begun to climb and, in the past couple of weeks, because of Hurricane Ida which crippled production in the Gulf of Mexico. Those inventory levels have fallen well below their 5-year average which is why the EIA expects U.S. production to climb somewhat (see above) in the months head. If they do not significantly boost production, prices are heading higher.
.
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