“$ 3 gas will be the norm until Memorial Day,” said Robert Yawger, director of energy futures at Mizuho Securities. “We have been in prison for a year. People want to leave the house.”
Some states are already dealing with $ 3 gas, including Pennsylvania, Illinois, Arizona, Utah, Nevada and California.
This has led some critics to try to put “blame” for the higher gas prices in Biden – although sources in the energy sector say that the increase really has nothing to do with federal policy.
“Make no mistake, prices would have gone up regardless of who was in the White House,” said Patrick De Haan, head of oil analysis at GasBuddy. “It is more about economic recovery.”
Goldman Sachs: $ 80 crude coming this summer
After being crushed by Covid in 2020, the oil market was one of the biggest winners of the wave of reopening on Wall Street. US oil reached a pandemic peak of $ 66.09 a barrel on March 5, an incredible recovery from the April 2020 low of negative $ 37 a barrel.
OPEC and Russia gave the oil boom a boost earlier this month, shocking the market with a decision to extend its dramatic production cuts for at least another month.
But Goldman Sachs predicts that the oil price will return as demand accelerates. The investment bank expects Brent oil, the world benchmark, to rise from just $ 65 today to $ 80 in the summer.
“We see the recent sale as a temporary setback in an otherwise big oil price hike and a buying opportunity,” wrote Damien Courvalin, Goldman’s head of energy research, in a report to customers last week.
Increasing demand, reduced supply
De Haan is surprised at how quickly demand for gasoline is returning to the levels last seen before the pandemic erupted. Based on GasBuddy data on gasoline purchases, U.S. weekly demand during the week ending March 20 was about 1% above the week ending March 14, 2020.
Driving directions searches in the United States also rebounded above January 2020 levels, according to mobility trends published by Apple. On the other hand, similar surveys in Germany, the United Kingdom and Italy remain well below January 2020 levels.
“There is a little more cabin fever this spring,” said De Haan. “The overwhelming chances are that, at some point, we will see the national average reach the $ 3 mark.”
In addition to the desire to take road trips, the energy market is being helped by the United States’ moderate supply. The pandemic was a crushing blow to the oil boom in the United States, with frackers drastically cutting production to stay alive.
Of course, it also means that American producers have the ability to pump a lot more if prices go up.
The Keystone Pipeline debate
Tom Kloza, global head of energy analysis at the Oil Price Information Service, does not think the national average will reach $ 3 a gallon this year because of high unemployment, remote work and reduced travel to major sporting and entertainment events.
Still, energy analysts have rejected the notion that Biden’s tough stance on fossil fuels is driving gasoline prices up, at least so far.
“Some blame is being placed on Biden and the Keystone Pipeline, but it has absolutely nothing to do with the price of oil or gasoline this year,” said Kloza.
$ 4 of gas could accelerate the EV boom
Of course, if Biden takes steps to severely restrict US production, it could lead to higher oil prices in the future.
Prices are probably not yet at the level at which they would consume demand, causing drivers to cancel road trips. And it is not clear what the tipping point would be, given the excitement about the reopening after the pandemic.
“$ 3 gas is not going to scare anyone,” said De Haan. “People are not going to restrain themselves this summer. They are finally starting to feel better.”
“You don’t want to go there,” said Mizuho’s Yawger. “You are going to kill the goose that lays the golden eggs.”