August 10, 2022
Gasoline prices fell $0.15 in the week ending August 8 to $4.04 after having fallen $0.14 in the previous week. Prices have now fallen $0.97 since reaching a peak in mid-June. In South Carolina gasoline prices tend to about $0.25 below the national average or $3.79. The EIA currently expects gasoline prices nationally to average $4.07 per gallon this year and $3.57 next year.
Crude prices fell $3 per barrel in the week ending August 8 to $94 per barrel after having fallen $3 in the previous week. Global demand for oil has been climbing as the global economy continues to recover. The war caused it to jump to a high of $121 in mid-June. As the war slogs on with little progress by either side the market’s worst fears have not come to pass and oil prices have declined sharply. If the economy does not slip into recession it is hard to imagine oil prices falling below their current level for an extended period of time.
Once the recession ended in April 2020 the demand for oil exceeded supply for the rest of 2021 as the global economy gathered steam. Both U.S. and global supply have been increasing, and now slightly exceeds demand which seems to be the cause of the recent drop.
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 recently risen almost back to where it started. Saudi Arabia has picked up the pace of production slightly. The same is true in the U.S.
Last year’s 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 12.2 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 remain below its pre-pandemic peak of 13.0 million barrels per day until the end of 2023. Given the war one hopes that oil companies in the U.S. will quickly ramp up production but that seems unlikely.
In the U.S. inventory levels have been falling sharply in recent months as the global economy has begun to climb and U.S. output has not increased commensurately. Those inventory levels have fallen well below their 5-year average which is why U.S. production needs to climb in the months ahead. Indeed, inventory levels are the lowest they have been since October 2004. With crude oil inventories the lowest they have been in 17 years it is hard to see how crude prices are going to decline any time soon.
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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