Heading into holiday season, US gas prices up more than $1/gallon versus last year
Gas prices across the U.S. are more than a dollar per gallon higher than they were a year ago following a plummet in prices as travel dropped in response to the COVID-19 pandemic. WAMC's Jim Levulis spoke with Patrick DeHaan, the head of petroleum analysis for GasBuddy, about what’s behind the surge.
DeHaan: Well things continue to escalate with the national average now breaching $3.30. Right at that level this morning, that's up 13 cents from a month ago and a $1.17 higher than where we were last year. All of that happening as the price of crude oil continues to advance globally, with a barrel of West Texas Intermediate up nearly another dollar a barrel this morning to $83 and change, and that is also a seven-year high.
Levulis: And what are some of the driving factors behind these increases?
DeHaan: Well primarily, supply and demand. Of course, COVID-19 has changed supply and demand significantly. Demand has certainly come surging back as the pandemic has eased. But production has been taking longer to come back partially because OPEC has refused to further increase production. And partially, at least as US and Canadian production only slowly comes back. So certainly, we are looking at an imbalance between supply and demand that was likely partially, or I should say most of which, likely has to do with the COVID-19 pandemic when Americans early on in the pandemic, of course stayed much closer to home, causing a massive decline in the price of crude oil, which led oil companies to cut back production.
Levulis: And what is preventing US and Canadian producers from getting back up to production? I know we spoke back in March and you mentioned that sector saw a lot of layoffs. And it's not something that with a snap of the finger, you can immediately turn back on.
DeHaan: Well as you mentioned, you know we're probably being slowed down by the fact that the labor market is extremely tight right now. But in addition, we're seeing a lot less public oil company investment in drilling right now and more private company investment. And some of that could do with the fact that there has been disinvestment from large pension systems in the US away and out of the fossil fuel sector. California and New York, both liquidating their positions in oil and gas companies. And that certainly can slow down and hurt the cash flow at these companies and reduce the speed which they can return production to the market.
Levulis: There's been a lot of talk about supply chain issues across the greater US economy. Is that something also that is impacting oil and gas, in terms of not just on the production side, but getting the product to consumers?
DeHaan: And not so much directly but indirectly. And I say indirectly because there's been an energy crunch developing overseas partially on the heels of China running low on coal. And that is something that supply chain bottlenecks could be affecting the ability for China to get enough coal for its power plants indirectly, then causing the price of oil to go up simply because crude oil can be used to generate electricity. And in addition, Europe is also running low on natural gas. And crude oil can be used as a replacement there in some instances as well. So indirectly, because of some of these supply chain issues, it could be affecting demand for crude oil by sending it up simply because crude oil can be used as a replacement in some of these areas.
Levulis: And we're speaking here in mid-October, obviously the holiday season is approaching. A lot of folks travel, hit the road for the holiday season. What do you expect prices at the pump will look like in November and December?
DeHaan: Well I think at least for now, we could see prices that that may be higher than they stand today. But I will say this is probably amongst the most challenging times to accurately forecast in my career of doing so simply because of all of the different imbalances and factors that are changing with a massive shift in consumer behavior and consumer spending. So it's difficult to know if some of these supply chain issues will be sorted out anytime soon. That will hold the key to whether or not gas prices will go up or down in the months ahead. I think for now we at least have several weeks that prices will continue to advance. But as we get close to the end of the year, we may potentially finally see some improvement.