Prices at the gas pump have surged to their highest level since April, and drivers should expect gas prices to keep rising in the coming weeks as oil markets tighten and extreme heat threatens refinery operations.
The average retail price for regular unleaded was $3.82 a gallon on August 3. That’s lower than the $4.16 a gallon average of a year ago, but prices have only been headed in one direction lately.
Yes, the threat of $ 4-a-gallon gasoline is back.
That’s terrible news for President Joe Biden as the 2024 presidential election cycle ramps up. Biden has few options for taming energy prices, so drivers could be in for a bumpy ride.
The President drained most of America’s Strategic Petroleum Reserve (SPR) ahead of last year’s midterm elections. While that was politically beneficial then, the nation’s oil stockpiles are now at a 40-year low.
President Biden has damaged his relationships with the domestic oil industry through policy decisions meant to curb fossil fuel production while subsidizing renewable energy resources.
He certainly can’t expect any help from the OPEC+ cartel, not with America’s relationship with price-setter Saudi Arabia at an all-time low and Russia seeking to maximize its oil revenues in the face of Western sanctions.
U.S. shale producers are doing everything they can to keep markets supplied, but it’s getting increasingly difficult to overcome the impact of deep OPEC+ production cuts on oil supply. Saudi Arabia and the other members of the oil-producing cartel are committed to managing the oil market for higher prices. Relations with the United States have taken a back seat to revenue, especially since OPEC+ members have increasingly shifted their focus to China.
U.S. benchmark West Texas Intermediate crude is now trading at a three-month high of around $80 a barrel as traders focus on a global supply deficit that threatens to drain inventories in the second half of the year, particularly now that all-important Chinese demand looks healthier due to Beijing’s pledges to step up economic policy support.
While crude prices may not reach $100, the trajectory for prices in the coming weeks and months does not bode well for budget-conscious households. Crude prices don’t even have to go that high to send prices for refined products like gasoline, diesel, and jet fuel soaring.
That’s because U.S. stockpiles of refined products remain near record lows amid a spate of refinery outages nationwide. Gasoline inventories, at 218 million barrels, are roughly 10 million barrels below their level a year ago. According to data from the Energy Information Administration, stockpiles of middle distillates – diesel, heating oil, and jet fuel – have failed to recover from the 10-year lows they reached in 2022.
In recent weeks, refineries owned by Exxon Mobil, Phillips 66
PSX
These refining facilities are not designed to operate in temperatures over 100 degrees for extended periods. Once a unit goes offline, it requires a lengthy multi-step process to bring them back online, which means extended periods of lost production.
That is taking a toll on supply. Gasoline supplies are at their lowest level since July 2015 and even lower than levels a year ago when refiners were paying record prices for crude oil.
The heatwave also increases the risk of hurricanes in the Gulf of Mexico, home to about one-third of the total U.S. refining capacity. Another storm like Hurricane Ida in 2021 or Katrina in 2005 could knock out the region’s refiners for months, sending fuel prices soaring.
The Biden administration is starting to wake up to the seriousness of the situation. Energy Secretary Jennifer Granholm recently told CNBC that “there’s no doubt that there is a volatile environment” and called for an increase in domestic output.
However, U.S. oil executives can’t help but roll their eyes at that kind of rhetoric from the Biden administration. They’ve been the target of so many anti-fossil fuel attacks by administration officials and their environmental allies that they’ve learned to shrug them off.
The administration’s latest energy transition initiative amounts to a ban on sales of new gasoline- and diesel-powered cars within a decade.
Nor are foreign suppliers likely to save America’s bacon, particularly since sanctions ban America from importing any fuel from Russia, which used to send as much as 700,000 barrels a day to the Northeast before the Ukraine war.
If prices keep rising, the White House will likely resort to threats to curtail U.S. exports of petroleum, as it did last year. But U.S. fuel prices are set based on activity in global commodity markets, so such a move would likely backfire and hurt American consumers. Higher energy prices may benefit Biden’s rapid energy transition plans, but there will be a political price to pay if consumers experience more pain at the pump. And that’s something President Biden will likely try to blame others for – principally the U.S. oil industry.
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