June 13, 2023
Gasoline prices fell $0.03 in the week ending June 5 to $3.54 after having risen $0.04 in the previous week. In South Carolina gasoline prices tend to be about $0.25 below the national average or $3.29. The EIA currently expects gasoline prices nationally to average $3.39 this year so expect gasoline prices to be largely unchanged for the rest of this year.
Crude prices were unchanged in the week ending June 5 at $72 per barrel. The EPA expects WTI prices to average $77.10 in 2023 so prices are likely to rise somewhat in the months ahead.
Both U.S. and OPEC supply and demand have been increasing and are expected be roughly in balance between now and the end of this year. .
Since the war between Ukraine and Russia began, sanctions initially reduced the output of Russian by about 1 million barrels per day but Russian output has regained about one-half of that amount. Saudi Arabia has picked up the pace of production somewhat since the recessioon and production is now about the same as what it was prior to the recession. U.S. production, as noted below, has quickened but still remains about 1.0 million barrels of oil per day less that what was being produced prior to the recession.
The 2020 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 12.3 million barrels per day which is 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 be 12.6 million barrels per day at the end of 2023 which means tht the pace of production will pick up in the second half of the year.
In the U.S. inventory levels fell sharply in every month last year as the U.S. dipped into its Strategic Petroleum Reserves in an effort to drive down the price of both crude oil and gasoline. They have been successful, but the drawdown has slowed considerably since the end of last year. Without additional supply from the SPR either domestic production needs to increase or imports need to rise to satisfy the demand. That certainly seems likely to push crude and oil prices higher towards the EPA’s expectation for crude prices to average $77.10 in 2022 (vs. $72.00 currently).
At 352 million barrels the SPR is now at its lowest level since 1984. The SPR was established in 1975 following the 1973 Arab oil embargo. The law was designed to provide a cushion in the event of severe energy disruptions. It started last year at 638 million barrels and has now been cut by 40%, With domestic production having been cut from 13.0 million barrels per day prior to the recession to 12.3 million barrels per day we wonder if the recent decline in the SPR provides an adequate cushion in the event hostilities break out somewhere in the world.