As we head towards Groundhog Day, it may be an idea for consumers to run for cover because diesel and gasoline prices are about to break through their pricing ceilings.
As of Friday, January 28 gasoline pump and diesel rack prices will set an all-time record with little reason for relief over the short-term, in fact, it could get much worse as prices climb even higher.
Media is going wild asking me why gas prices are so high, here are a few reasons:
• The cost of crude, the anchor for all refined product pricing, is now approaching $90/bbl. This is a result of increasing demand from a diminishing source of supply.
• Although OPEC+ agreed internally to increase crude oil supply by 400,000 bpd beginning in August of 2021, they are falling short of this commitment. In December, they only managed to increase supply by 250,000 bpd, well off their target.
• The bellwether of global crude oil and refined product pricing is the Energy Information Administration’s (EIA) report. This week’s report indicates a drop in supply of crude, gasoline, and distillates – aggravated by an increase in demand for all refined products, and unless that gap narrows, prices will increase. There is little indication that the latest pandemic variant has lessened consumer enthusiasm to get back on the road and/or back to the airports.
• There is also a problem with a slowing in refinery runs that are needed to supply the refined products to the consumer market. This is due to refineries going into maintenance dormancy prior to the summer driving season.
• Finally, there is the problem now with the Russia/Ukraine impasse. Russia supplies 40% of the EU natural gas requirements. Should the situation escalate, this will shorten gas supply and a need to boost U.S. LNG exports. This would mean an increase in U.S. domestic natural gas prices, which would then mean that the alternative energy source would be lower priced diesel and heating oil. This, in turn, will drag up gasoline pump and diesel rack prices well past the now record levels.
If the groundhog’s decision on Wednesday, February 2 is six more weeks of winter, I don’t know if we can take six more weeks of these skyrocketing prices.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
Add comment