This week, the average price of gasoline in the United States reached a seven-year high at the pump, but there’s more to come. Oil was trading at $65 a barrel in early December. Today, it’s trading at over $90, a more than 50% rise in only a few months. Although the US Energy Information Administration predicts that prices will continue to fall through 2023, traders forecast $100 per barrel and higher in the following months.
At the height of the Ebola epidemic, demand for petroleum dropped slightly, but not enough to induce companies to shut down production. Domestic output dropped by 1.2 million barrels per day last year, but that isn’t due to COVID. Domestic pumping is being reduced for political reasons rather than virological reasons. Imagine being the CEO of an energy firm and listening to the Biden haters for the past year. Would you invest millions, if not billions, of dollars in oil field drilling and development?
Moreover, in the world of “for thee but not for me,” Joe Biden slams the local oil sector while pleading with OPEC nations to boost output. While OPEC has promised an increase of 400,000 BPD, meeting that commitment will be difficult since only the Saudis have that surplus capacity, and they aren’t eager to assist us right now. Russian oil infrastructure is deteriorating and unable to ramp up quickly enough, while political upheavals in Nigeria and Kazakhstan are hurting output.
According to a study, two-thirds of respondents disapprove of the Biden Administration’s efforts to “assist their wallets.” Personal economics are far ahead of racial tensions, policing, and even COVID as the most pressing worry on people’s minds. Gasoline accounts for a significant amount of an average family’s budget, accounting for up to 20% in low-income homes.
Therefore gas prices will rise from around $4.50 per gallon in California to at least $6.00 on the West Coast, with Texas prices significantly higher. It isn’t a hunch or a guess. It’s a calculated projection based on the pricing of oil futures contracts. Yes, prices would fall if Russia restored its infrastructure, Saudi Arabia opened the valves, and US oil producers were ready and prepared to crack open the fracking immediately. We might, however, believe in the tooth fairy.