Economy

Here comes $ 3 in gas, just as Americans start to travel again

OPEC and its allies extend production cuts
National average price of gasoline It rose 47 days in a row To approximately $ 2.89 a gallon, according to AAA. American drivers have not seen an average price per gallon of $ 3 since 2014, although it came close in 2018 and 2019.

“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.

The pain in the pump could cause political trouble for the White House. President Joe Biden took swift action this winter to respond to the climate crisis Suppression of the fossil fuel industry.

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.

The V-shaped recovery in the oil sector ran into trouble last week. US crude tumbled 6% to $ 61.42 a barrel on worries about Vaccines spread widely in Europe.

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.

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“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.

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“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.

Even with the price of US crude exceeding $ 60 a barrel, the country produces only about 10.9 million barrels of oil per day, according to estimates. Federal government. This is down by a staggering 2.2 million barrels per day compared to the same period in 2020.

Of course, this also means that US producers have the ability to pump more if prices rise too much.

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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.

Regardless, higher gas prices will fuel the narrative that Biden’s energy policies will hurt US consumers in the wallet. On the campaign trail, Biden had to do so Denies repeatedly His opponent claims that he will prevent hydraulic fracturing.
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But Biden moved quickly to tackle the climate crisis. On his first day in office, he is Keystone XL Pipeline canceled, Imposed a temporary moratorium on oil and gas leasing in the Arctic and moved to join the Paris Agreement on climate change.
In late January, Biden imposed too 60 days comment On permits for leasing and exploration for new oil and gas on federal territory unless approved by the leaders of the Ministry of Interior. Most importantly, this policy only applies to new leases and permits, not to existing licenses. The Interior Ministry said earlier this month, to the dismay of climate activists, that the 60-day suspension would not be renewed.

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.

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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.”

The bigger picture is, the oil industry doesn’t want to see a big price hike because that will only lead to acceleration Switch to electric cars.

You don’t want to go there, ”said Yawger of Mizuho. “You will kill the golden goose.”

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