“Three dollars of gas will be the norm on Memorial Day,” said Robert Yawger, director of energy futures at Mizuho Securities. “We have been trapped inside for a year. People want to go out.”
Some states already handle $ 3 in gas, including Pennsylvania, Illinois, Arizona, Utah, Nevada and California.
This has led some critics to try to “blame” Biden for the hike in gas prices – although energy industry insiders say the increase is in fact not related to federal policy.
“Make no mistake, prices were going to go up no matter who was in the White House,” said Patrick de Haan, head of petroleum analysis at GasBuddy. “This has more to do with the economic recovery.”
Goldman Sachs: $ 80 crude price will come this summer
Having been crushed by the Covid virus in 2020, the oil market was one of the biggest winners in the reopening of the Wall Street rush. US crude hit an epidemic high of $ 66.09 a barrel on March 5, an incredible rebound from its April 2020 low of $ 37 a barrel.
OPEC and Russia gave a boost to the oil rally earlier this month, shocking the market with the decision to extend dramatic production cuts for at least another month.
But Goldman Sachs expects the oil rally to return as demand accelerates. The investment bank expects Brent crude, the global benchmark, to rise from just $ 65 today to $ 80 by summer.
“We view the recent sell-off as a temporary reversal in the soaring oil price and a buying opportunity,” Damian Corvalin, head of energy research at Goldman, wrote in a report to clients last week.
High demand and declining supply
De Haan was surprised how quickly demand for gasoline was returning to levels last seen before the outbreak. Based on GasBuddy data on gasoline purchases, weekly demand in the United States during the week ending March 20 increased roughly 1% from the week ending March 14, 2020.
Searches for driving directions in the United States have also recovered above January 2020 levels, according to Navigation Trends published by Apple. In contrast, similar searches in Germany, the United Kingdom and Italy are still well below January 2020 levels.
“There is more cabin fever this spring,” De Haan said. “The overwhelming odds are that at some point we will see that the national average touches the $ 3 mark.”
In addition to the desire to take road trips, the energy market is being supported by weak US supplies. The pandemic dealt a crushing blow to the oil boom in the United States, as frackers drastically cut production to survive.
Of course, this also means that US producers have the ability to pump more if prices rise too much.
Keystone pipeline discussion
Tom Closa, global head of energy analysis at the Oil Price Information Service, does not believe the national average will reach $ 3 a gallon this year due to high unemployment, telecommuting and reduced travel to major sporting and entertainment events.
However, energy analysts have rejected the notion that Biden’s hard-line stance on fossil fuels drives up gasoline prices, at least for now.
“Some of the blame is being placed on Biden and the Keystone pipeline, but this has absolutely nothing to do with the price of crude oil or gasoline this year,” Clausa said.
$ 4 gas can speed up the electric winch
Of course, if Biden took measures to severely restrict US production, that could ultimately lead to oil prices spiking down the line.
Prices will likely not be at the level at which it will eat the demand by causing drivers to cancel road trips. It is not clear what kind of turning point will give the enthusiasm about re-opening up after the pandemic.
“$ 3 gas isn’t going to scare anyone,” said De Haan. “People are not going to hold back this summer. They are finally starting to feel better.”
You don’t want to go there, ”said Yawger of Mizuho. “You will kill the golden goose.”