Have we turned the tables on the oil industry? Have we intimidated them just enough to get them to lower gasoline and diesel prices? Have we forced them to crater pump prices by 15 cents per litre? Have our government leaders led this crusade? You mean to tell me that there is a Santa Claus, and that he or she is elected?!
Or are the latest gas price plunges we’ve seen at the pumps lately not due to any of the above; and the tables are just more props in the political game of musical chairs?
Let’s reverse the revolving door for a moment and see what really led to this transformation from the doom of night to the light of day – and how long this sunny day is going to last.
It was but two weeks ago that pump prices were around $2.10 per litre. Today we are looking at $1.77 per litre in the eastern part of the country.
In my mind, the reason for this flip was a change in tactics in the war room of pricing. Prices skyrocketed because it turned out that the driver was the imbalance in the supply and demand equation.
Speculators were watching the U.S. inventory reports, which showed levels of crude, gasoline, and distillates were all down significantly versus the five-year average, while demand for gasoline and jet fuel was out of control.
Many people starting saying, “The pandemic is over don’t you know? I don’t really care what the price of gasoline is. Time to get back to work, back on the road, and head to the airport. Yay!”
Then suddenly, someone of importance must have noticed that a single head of cauliflower was going for $6.99. Inflation was speeding up as were interest rates. The housing market was shaking on its foundations. The U.S. midterms were on the horizon, and President Joe Biden’s political future was on shaky ground.
The rate of demand increase has now flattened due to the fear factor of a looming recession.
Under presidential pressure, refinery runs are now in top gear at 96% capacity.
The president is pulling out all the stops. He’s drawing relentlessly from the Strategic Petroleum Reserve (SPR), has an upcoming meeting with the Saudis, and he’s renewing the USA’s relationship with Venezuela – all in the hope of securing more sour crude – just like the kind he gets from Canada.
The net result of all of this is that supply has increased, demand is evaporating, and prices are plummeting.
So, the good news right now is we can all hop in the car and head off to Wally World but check your rear-view mirror because we are being tailgated and about to be rear ended by a driver going by the name “Recession.”
– Roger McKnight – B.Sc., Senior Petroleum Analyst