April 1, 2020
Gasoline prices at the retail level fell $0.11 in the week ending March 30 to $2.01 per gallon. In South Carolina gasoline prices tend to about $0.25 below the national average or about $1.76. In the short-term pump prices are going to fall farther. The spot price of gasoline has fallen 65% to to $0.62 from $1.83 a year ago which suggests that gas prices at the pump are likely to dip to about $1.50 in the weeks ahead.
Crude prices plunged another $7 per barrel this past week to $14 briefly, but they since since rebounded to about $20.00. Last year at this time crude prices were $62 per barrel so we are looking at crude prices currently that are 65% lower than where they were at this time last year when crude was about $60 per barrel. Oil prices today are the lowest they have been since 9-11 which was almost 20 years ago. The drop in prices is partly attributable to the corona virus which has slashed economic activity in every corner of the globe. .At the same time a spat between Saudi Arabia and Russia has pushed prices lower. To quell the slide in oil prices the Saudi’s wanted to cut oil production. The Russians were tired of OPEC losing market share to the burgeoning U.S. shale oil industry and they refused to go along with a cut in production. The Saudi’s got mad and said they would sharply boost output to push prices even lower and punish the Russians (even at their own expense). Makes no sense.
Meanwhile, U.S. production has surged from 10,900 thousand barrels to 13,100 thousand barrels per day. Despite the drop in demand, U.S. production has remained steady at about 13,000 thousand barrels per day.
The Department of Energy expects U.S. production to climb 8% from 12.2 million barrels per day in 2019 to 13.0 million barrels in 2020. The U.S. became the world’s largest oil producer in March of 2018 and the gap between U.S. production and that of Russia, and Saudi Arabia continues to widen .
At the moment toil inventories have begun to rise But if demand drops and the U.S. and the Saudi’s continue to flood the market with additional oil, those inventory levels will continue to climb.
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