Earlier in the COVID-19 pandemic, the price of oil plummeted globally as travel for work and leisure was dramatically scaled back because of health concerns. Now with vaccines being rolled out and restrictions being lifted, the price of oil is on the rise. GasBuddy now says it’s likely the national average of a gallon of gas in the U.S. will reach $3 by Memorial Day. On Friday, WAMC's Jim Levulis spoke with the company’s head of petroleum analysis, Patrick DeHaan.
DeHaan: Well it's certainly not a guarantee, we're not saying it will happen. We're just saying there's certainly a high potential, 70% chance that the national average could hit that $3 gallon mark. And a lot of it stems from the fact that OPEC met yesterday [March 4] and decided to keep oil production figures unchanged. That is, they're extending the production cuts they've made in the last 12 months, amounting to 10 million barrels a day less of oil production and pre-COVID levels. That comes at a time that Americans are filling up their tanks at the most brisk pace since the pandemic started. So we are looking at a pretty big imbalance here, demand is strengthening and continues to rise. Whereas oil producers, led by OPEC, are continuing to only churn out oil at the same pace they did during the pandemic. So there's certainly a mismatch here and that's caused oil prices to rally significantly, in fact, just now this morning [March 5], oil prices close to $66. That's good for the highest price since 2019. So really, it's pretty, pretty cut and dry here, demand is up more than supply is, and that is pushing prices higher.
Levulis: Could production in the US increase to fill the void?
DeHaan: It could, but it would take many months to do so. As a function of last year's low oil prices, oil companies were hit swiftly and significantly, laying off thousands of workers during the depths of the pandemic. That is not manpower that could just quickly come back in the snap of a finger. Wells have been shut down. People have been laid off and it will take many months, if not longer to restore some of that production. In addition, US oil companies lost a collective $50 billion last year alone. And so you could argue that they are still in survival mode.
Levulis: Some companies have said that they will continue to allow employees to work at home at least part time even after the pandemic is over. Could what we have witnessed in terms of work for travel for work over the past year be indicative of what might be existing in the future?
DeHaan: Well, it certainly could be. It certainly could be. I would expect some of those work from home benefits to likely continue, even after the pandemic is behind us. And that will likely lead to a longer period of time it will take gasoline demand to return to fully pre-COVID levels. However, on the other side, offsetting that is a market that is heating up tremendously. COVID numbers are down. Americans have been under restrictions for the last year on travel. And you could argue that there is significant pent up demand to offset the amount of people that are now working from home and have no commute. So there's a lot of wheels turning here. And a lot of this moving forward is contingent on continued recovery in the pandemic. But it's certainly looking like the national average could hit that $3 gallon mark in short order.
Levulis: Now looking even further into the future here, automotive manufacturers such as GM and Ford, they've been rather public about their intention to shift to fully electric vehicles. In your mind, what does that spell for the fuel industry?
DeHaan: I mean you're talking about something that will take decades that is not moving very quickly. And amidst a pandemic, when millions are still unemployed, I would be skeptical that this is something that would greatly change the game in the next few years. It will certainly in the decades ahead. As Americans in some areas may migrate to EVs, but at least in the short term in the next few years, as we continue to recover from a pandemic, in which millions are unemployed, it probably won't change a whole lot.
Levulis: Now, of course, none of what we've been talking about is really under the control of the people who are pumping gas into their vehicles. So what are some of your tips for those trying to save money on gas as the prices do increase?
DeHaan: Well, you know, Americans could drive less and that would scale back the price increases. The market is driven by supply and demand. If Americans are reducing their demand that would certainly eat into the increases. But aside from that, motorists should certainly continue to shop around. So many times this year already I've seen people saying on social media that they just go and fill up, they don't really shop around, because they need it anyway. But essentially, people that simply go to the station and fill up are likely paying more than they should by the tune of 10 to 20 cents a gallon, which adds up to potentially $200 a year or more. So, I would continue to urge motorists to take the 10 or 15 seconds to find out if that station is a good deal or a bad deal.
