September 9, 2020
Gasoline prices at the retail level fell $0.01 in the week ending September 7 to $2.21 per gallon. After hitting bottom at $1.77 in the week of April 27, gasoline prices have been rising steadily. In South Carolina gasoline prices tend to about $0.25 below the national average or about $1.96 The EIA expect gasoline prices to average $2.16 per gallon this year so, if they are right, prices should be relatively unchanged in the final three months of this year.
Crude prices declined about $6.00 in this past week to $37 per barrel.
The reason prices fell in March and April is primarily because the corona virus caused global economic activity to come to a screeching halt. Demand dropped abruptly (the yellow line below), but production did not decline as quickly (the green line). As a result, supply exceeded demand by about 7.0 million barrels per day in the second quarter (the blue bars). However, in the third and fourth quarters global production should rebound by less the increase in demand, which means that those inventory levels will get reduced.
In recent years fracking and horizontal drilling have dramatically boosted U.S. production 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 to 10,000 thousand barrels per day in the most recent week. It should stay at that reduced level a while as producers try to get inventories back into closer alignment with demand. But as the global economy recovers the demand for oil will eventually rise. But before production can pick up significantly, inventory levels will have to be reduced.
In the U.S. inventory levels rose sharply during the recession which is why U.S. producers have been sharply curtailing production. As the global economy recovers those bloated inventory levels have begun to shrink.
.
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