Summer travel, economic recovery pushing up gas prices
LOS ANGELES (AP) – The economic recovery is pushing up gas prices.
Drivers face more expensive refills as more people hit the road for work, travel and other activities that the virus pandemic has halted. Higher gasoline demand is met with lagging supply as the energy industry slowly grows after more than a year of production and downsizing.
Prices are particularly painful for drivers who, just a year ago, saw gasoline drop to its lowest level since 2016, but who were unable to take advantage because the virus pandemic limited travel.
The disconnect between supply and demand is exacerbated by a busier summer travel season as COVID-19 cases decline, vaccination rates rise and the tourism industry recovers. The Energy Information Administration estimated that gas demand for the week ending July 2, which included just one day of the Independence Day holiday weekend, was the highest in 30 years.
“The reason we’re here is because of the imbalances created by COVID-19,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Less driving during the pandemic has plunged demand for gas and this has forced the fuel industry to cut production and lay off workers. “
The national average price of gas has risen 40% since the start of the year, according to AAA, and drivers can expect the price to continue to rise. The auto club expects the national average to exceed $ 3.25 this summer.
The real cost of gas isn’t near an all-time high, De Haan said, but the rapid rise in prices shortly after last year’s sharp drop makes it more painful.
“Obviously, the $ 3 threshold is what makes the drop particularly worse,” De Haan said.
Much of the production imbalance stems from the resistance of the OPEC cartel to increase production to meet growing demand. Talks between OPEC members and allied oil-producing countries came to a halt earlier this month in a deadlock with the United Arab Emirates over production levels.
Currently, OPEC and allied countries produce some 37 million barrels per day, up from around 43 million barrels per day in April last year, at the start of the pandemic. The low supply and high demand situation has pushed crude oil prices over 50% in 2021 to levels not seen since late 2018.
“Many energy companies have halted development because bond holders demanded discipline and you don’t see a reaction from the offer,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management.
Analysts said high oil and gas prices are likely to remain this year as the economic recovery stabilizes and energy companies regain their balance with production and personnel levels.