November 6, 2019
Gasoline prices at the retail level rose $0.01 in the week ending November 4 to $2.61 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.36. The Department of Energy expects national gasoline prices to average $2.56 in 2019, roughly where they are currently. Pump prices a year ago were averaging about $2.75 per gallon.
Crude prices were largely unchanged last week at about $56 per barrel. But last year at this time crude prices were $62 per barrel so we are looking at crude prices currently that are 10% below where they were at this time last year.
Crude oil output in both Venezuela and Iran has been steadily declining for more than a year. Venezuela’s oil output has been fallen steadily and is showing no sign of recovering. The Iranian sanctions went into effect in early November of last year. Iranian production has since fallen sharply. The U.S.’s goal is to reduce exports (and, hence, production) close to zero. That isn’t happening, but Iranian production has still fallen sharply.
Meanwhile, U.S. production has surged from 10,900 thousand barrels to 12,600 thousand barrels per day. Almost certainly U.S. production will continue to climb in the months ahead. The EIA projects it will average 13,300 thousand barrels per day in 2020.
A cut in oil production by the Saudi’s this year combined with reduced production in Venezuela and Iran has boosted the price of oil somewhat. The Saudi’s would like it to climb to $90, or at least $85, per barrel to ensure that their budget deficit remains in balance. That is not going to happen. As prices rise U.S. drillers will quickly boost production. At the moment the impressive increase in U.S. production is countering the cutbacks from Venezuela and Iran. The Saudi’s share of global production has been falling steadily for the past couple of years. However, the Saudis cannot allow its market share to continue to slide.
The Department of Energy expects U.S. production to climb 13% from 11.0 million barrels last year to 12.3 million barrels this year and to 13.3 million barrels per day in 2020. The U.S. became the world’s largest oil producer in March of last year and the gap between U.S. production and that of Russia, and Saudi Arabia will widen in 2019 and 2020. The big drop in Saudi production in September reflects the impact of the attack on their oil fields during that month. It should prove to be a temporary decline.
The cut in Saudi production combined with reduced production in Venezuela and Iran appears to have created a bit of an inventory shortfall. At 1,087 million barrels crude inventories are a bit below the 5-year average of 1,116 million barrels.
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