ROAD TO RECOVERY
Travel surge as states reopen is among signs pointing to oil’s rebound this year.
From the shale oil patches of Texas, along U.S. interstates and to the coast of California, more signs show that the oil industry is recovering almost a year after it reached a historic low during the pandemic-driven crash.
The price of oil sank to -$37.63 on April 20 as demand for crude plummeted and stockpiles reached historic levels.
Twelve months later, the price of West Texas Intermediate, which reached as high as $66, hovers around $60 a barrel, oil inventories have shrunk and demand for crude products has slowly returned.
On Friday, Norwegian energy research firm Rystad said hydraulic fracturing activity in North America has nearly recovered to pre-pandemic levels, with 1,064 wells in March, setting the stage for oil production to rise in the second quarter.
Rystad said it counted 429 new hydraulic fracturing wells in the Permian in March, up from 260 in February and far above the 300 well completions needed to maintain pre-pandemic output.
The road to recovery isn’t without some possible bumps, however, as Rystad said shale production could slow this year as OPEC ramps up production and highly-contagious coronavirus variants continue to threaten demand.
On the road again
Meanwhile, U.S. drivers will buy more gasoline this summer despite paying more at the pump, the Energy Information Administration said.
Gasoline consumption will rise this summer compared with the April-September period in
2020, when lockdowns during the peak of the coronavirus pandemic halted most unnecessary travel, the EIA said. During the height of the summer travel season, the EIA said, consumers will buy 9.1 million barrels of gasoline per day, compared with 8.5 million barrels a day in August 2o2o.
The pandemic will continue to weigh on gasoline purchases,
however, as many Americans continue to work from home.
Still, gasoline demand has risen for six-straight weeks, said Patrick De Haan, head of petroleum analysis for GasBuddy, the fuel-price tracking website. If that continues, he said, gasoline prices could rise higher than even the EIA expects.
The average retail price of gas in the U.S. will rise to $2.78 per
gallon this summer, the agency says, 72 cents more than last summer’s average of $2.06 per gallon. DeHaan says gas prices could surge higher.
“We may see a second attempt at a run at a national average of $3 per gallon in the months ahead,” De Haan said earlier this week. “While the last few weeks have seen gas prices hold mostly steady, it’s not likely to last forever, especially as Americans increasingly get outside as warmer temperatures return.”
Go west, pay more
California drivers are edging closer to paying $4 for a gallon of gasoline with the state open for business again and Gov. Gavin Newsom planning for a summer with almost no restrictions.
The move toward normalcy in the most populous U.S. state has already sent prices at the pump near their highest since the fall of 2019, as everything from theme parks to indoor swimming pools get ready to come back.
The reopening is a muchanticipated boon to a hard-hit state that relies heavily on tourism, and to a fuel market that saw demand plunge during the pandemic. But the gasoline price spike also shows the inflation risks for the economy.
In San Francisco’s cash market, where refiners and retailers trade the motor fuel, the premium on gasoline for April delivery rose by 2 cents to 12 cents a gallon above New York futures on Thursday, according to data compiled by Bloomberg. That’s the highest since Jan. 7. The cash-market price is rising in Los Angeles, too.
At the pump, the average price in the state has risen 18 cents in the last month to $3.93 a gallon on Thursday, according to the AAA auto club. The average last topped $4 on Nov. 14, 2019, AAA spokesman Jeff Spring said.
Demand already had been increasing with Californians traveling more before Newsom’s announcement, said John Faulstich, oil analyst at Stillwater Associates in Irvine, Calif.