The State of Fuel Prices
As of press time, the national average price of gasoline is $3.13 a gallon, up 44% from $2.18 a year ago, according to AAA, when the pandemic lockdowns were in full force, stifling fuel consumption.
And California, the most expensive market, is already at $4.31.
So, what’s driving the surge in fuel prices? There are several factors in play, but here are two of the big ones.
The first is the post-pandemic economic recovery in the U.S.
Today’s sticker shock at the pump might have more to do with comparisons to last year’s historically low fuel prices than what would have been typical if we hadn’t been in the middle of a pandemic with global economic lockdowns that lasted for several weeks.
At one point, oil prices fell by more than $50 a barrel in a single day last April – to less than zero.
But as most states have lifted COVID restrictions in recent weeks, this means increased travel, more people commuting to the office and greater fuel demand, driving up the price at the pump.
The other factor is global, having to do with the Organization of the Petroleum Exporting Countries (OPEC).
According to The New York Times, OPEC and allied producers like Russia surprised many analysts this spring by keeping several million barrels of oil off the market. OPEC and its partners are pumping roughly 780,000 barrels of oil a day less than at the beginning of the year despite prices rising by 30% in recent months.
Why is OPEC limiting production to boost prices?
The Times quoted René Ortiz, a former secretary-general of OPEC and Ecuador’s former energy minister, who said, “The discipline to support higher prices is needed for the recovery of their economies.”
In other words, the OPEC member countries need to sustain higher oil prices right now to make up for the substantial revenue drop from this time last year to balance their budgets and service their debts.
The bottom line: At least for the foreseeable future, as fuel demand continues to increase in a post-pandemic world, so will the price at the pump. Watch this space.
Sean M. Lyden