Gas prices jump again, setting the tone for oil markets
It took about a year, but conditions for the oil industry have swung from plunging demand and record inventories to tightening supplies and growing petroleum consumption.
The dramatic shift is reflected in gasoline prices that jumped another 12 cents a gallon in Houston over the past week and have increased more than 40 cents a gallon over the past month. Average gasoline prices here hit $2.55 a gallon Monday, the highest for this time of year since 2014.
Prices nationally moved within striking distance of $3 a gallon, averaging $2.86, according to the fuel tracking website GasBuddy.
Patrick De Haan, head of petroleum analysis for GasBuddy, said petroleum consumption has come back faster than might have been imagined not long ago. Gasoline demand last week was just 1 percent below pre-pandemic levels, DeHaan said.
“The recovery in the last few weeks has been astounding,” De Haan said. “It’s no longer a question of if we’ll see gasoline demand return to near normal this year but when. Will oil producers rise to the occasion and be able to quickly ramp up output, or are we going to see the highest summer prices since 2014 until they
jump into action?”
Oil producers don’t seem to be in a rush to significantly increase output. OPEC and its allies recently extended their production curbs, keeping some 7 million barrels a day off the market. U.S. shale drillers, meanwhile, are responding cautiously to higher prices rather than kicking into high gear as they have in recent years. Last week, the U.S. drilling rig count fell by one, despite prices above $65 a barrel.
Crude settled in New York Monday at $65.39 a barrel, down 22 cents.
The oil market this week could be influenced by refinery activity along the Gulf Coast, analysts said. Refineries are operating at about 64 percent of their capacity, down some 20 percent from early February, before the winter storm knocked out power across the state and caused widespread damage.
The slow return of refiners has skewed the market. Commercial crude oil inventories increased by 13.8 million barrels during the week ended March 5, while gasoline storage levels decreased by 11.9 million barrels.
“If gasoline continues to draw though, that would be a major bullish factor,” said Saad Rahim, chief economist for commodity trading house Trafigura. Refineries will eventually have to buy more crude oil to replenish stocks and meet the projected growth in demand.
Another round of stimulus checks could also affect the market, analysts said. President Joe Biden’s $1.9 trillion stimulus bill means that some 90 percent of individual taxpayers could receive payments of up to $1,400 in their bank accounts as early as this week.
But rising gasoline prices could offset some of the impact, discouraging spending on other goods and services just as U.S. consumers look to break out from a year of social restrictions, analysts said.