As I went to fill my gas tank last weekend, I was shocked to notice that the price per gallon for regular gas was a whopping $2.79, up almost an entire dollar from what I had paid the week prior. Had I been able to make it to my next destination without filling my tank, I certainly would have left, but with my dial nearly on empty, I had no choice but to stay and fill up.
As I drove away, frustrated and slightly confused, I wondered what exactly accounted for such a price increase in such a short time. I decided to dive deeper into some of the factors that play into why petroleum has been so costly lately.
If you turn on the news, you will find that many Republican politicians are blaming the current economic state on President Joe Biden. However, the cause is not that simple. In reality, Biden’s policies have had a minor impact on the cost increase of crude oil. President Biden’s decision to shut down the Keystone XL Pipeline will undoubtedly impact employment, the climate, and the economy, but most researchers suggest that these influences are nearly impossible to predict and will only become apparent after a very long period of time. Additionally, the Keystone Pipeline investment had already been waning within the past year during the COVID-19 pandemic. Thus, the pipeline’s closure alone could not have such a significant impact on the oil industry.
Winter Weather & WTI
During the past year, the global pandemic has caused demand for oil to decrease significantly. In turn, refinery has slowed, and the price has augmented dramatically. At the start of February 2021, refinery utilization was 83%. This month, it is down to 56%, the lowest recorded in the United States.
This is, in part, due to last month’s adverse weather conditions in Texas and other southern states. The West Texas Intermediate (WTI) is usually less susceptible to drastic change than the Brent crude because WTI production occurs in land-locked areas. However, Texas’s recent devastating winter freeze is another factor playing a major role in slowing crude oil production, halting the manufacturing of approximately 4 million barrels per day (BPD).
Suppose oil production in the United States is affected by weather conditions. In that case, it is usually due to hurricanes off the Gulf of Mexico, but this time, the hindrance came from the winter weather. Texas was not the only oil production area affected by frigid temperatures. Other major oil-producing states, including North Dakota and Oklahoma, have taken a hit to their BPD quotas.
Saudi Arabia & Brent Crude
In January 2021, Saudi Arabian officials announced a joint plan with OPEC to reduce oil production by 1 million BPD due to budget price cuts. A newer issue emerged last week as Saudi Arabia, the world’s second-largest oil-exporting nation (following the United States), was targeted by missile attacks. The attacks, which do not come as a surprise amidst the Yemen civil war, originated from Iranian-backed Houthis in Yemen.
Moreover, employee strikes at Saudi Arabian oil fields are on the rise. The Saudi Arabian Ministry of Energy is deeming these attacks and strikes threats to “the security and stability of the energy supplies of the world.” For the first time in over a year, the international standard Brent crude oil, majorly produce in Saudi Arabia, has jumped to over $70 per barrel.
According to AAA, the national gas price average is currently at its highest since August of 2019. From the start of February to the beginning of March, the gas price has increased by an average of 30 cents in the United States. As of March 12th, the national average is $2.82. Arizona is currently seeing the most significant weekly increase in the United States at a rate of 25 cents, with western states such as Utah holding the highest average price per gal. overall.
On March 11th, the Organization of Petroleum Exporting Countries Secretariat reported in the Monthly Oil Market Report its predictions increased demand and economic growth within the oil industry. According to the report mentioned above, “additional stimulus measures in the U.S. and an accelerating recovery in Asian economies” will cause the demand for oil and energy to increase in the coming months.
The majority of economists continue to predict that by the summer, gas prices will continue rising considerably. The oil and energy company Wood Mackenzie has released a statement forecasting that oil will continue to trade for $70-75 well into April.
With credit to the forecast, Yemen humanitarian crisis, and COVID-19 pandemic, it appears as if everyone will be paying higher gas charges for the foreseeable future.