January 21, 2021
Gasoline prices at the retail level rose $0.67 in the week ending January 18 to $2.38 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $2.13. The EIA expect gasoline prices to average $2.40 per gallon this year and $2.42 next year –little different from current prices.
Crude prices were essentially unchanged in this past week at $53 per barrel.
The reason prices fell in March and April of last year 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 7.5 million barrels per day in the second quarter (the blue bars) and inventory levels rose. However, in the third and fourth quarters demand rebounded and inventory levels declined. In the first quarter of this year global demand will continue to exceed supply and inventory levels should continue to shrink.
In recent years fracking and horizontal drilling dramatically boosted U.S. production to 13,100 thousand barrels per day. But given the drop in the global economy in the spring of last year and in corresponding drop in the demand for oil, production fell sharply and is expected to average only about 11.1 million barrels per day in 2021.
In the U.S. inventory levels rose sharply during the recession which is why U.S. producers have been sharply curtailing production. But now as the global economy has begun to climb those inventory levels are roughly in line with where they should be.