The pandemic has all but shut down cities such New York and San Francisco, it’s also affecting oil prices that are falling at a rate where producers are hoping for relief from what analysts describe as a “perfect storm.”
Gas Buddy noted this week the national average could soon hit $1.99, with $1.49 on the horizon and some stations potentially pricing a gallon of regular as low as 99 cents. The last time prices dropped below $1.60 was in December 2008, during the financial crisis, after falling from a July high of $4.10, Gas Buddy noted.
AAA noted gas price averages in 35 states decreased by double-digits, pushing the national average to $2.25, the cheapest price point of the year.
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“The national gas price average is 13 cents cheaper on the week and nearly 20 cents less than the beginning of the month. These are significant decreases in just seven and 16 days,” said Jeanette Casselano, AAA spokesperson. “AAA expects gas prices to continue trending cheaper, with the high likelihood of the national average hitting $2 per gallon before the end of March,” she said.
From Feb. 21 to March 13, the U.S. average retail regular-grade price declined 14.53 cents per gallon (CPG) to $2.3869, according to the most recent Lundberg Survey of U.S. fuel markets. The national average diesel fuel price dropped 9.65 cents to $2.8803.
Oklahoma, Mississippi and Kentucky are the cheapest states to get gas right now, averaging $1.846, $1.884 and $1.902 per gallon, respectively. Meanwhile Hawaii ($3.666) and California ($3.260) report the highest prices, but even those two saw drops in the last week.
The downward pressure on oil prices also is bound to put added pressure on alternative energy.
Lundberg said typically gas prices start to increase sometime between February and March for the same annual seasonal reasons: refinery maintenance takes place, demand for gasoline starts to go up as temperatures warm up and the switch to summer-blend gasoline happens in preparation for the summer driving season.
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The demand for oil has dropped tremendously week-over-week, while supply remains high. There is a big imbalance between supply (high) and demand (low). The coronavirus has caused countries to be in lockdown, limiting driving, flying and overall movement in order to contain the spread. This means very little need (demand) for oil.
In turn, the drop in demand caused by the coronavirus, big oil-producing countries Saudi Arabia and Russia got together to discuss plans to cut-back oil production in hopes to balance out supply and demand. The meeting didn’t go well. There was no agreement on what to do. Rather, it caused a price war that led to one of the biggest single-day-drop in oil prices since 1991, Lundberg noted.
There is a pre-coronavirus level for oil demand, and a post-coronavirus level of demand. Demand for oil will be at multi-decade lows for a better part of 2020, which means gas prices will be some of the lowest we’ve experienced in a while, Lundberg added.
AAA weekly analysis also noted the Trump administration has taken discrete steps to prop up oil prices in the U.S.
“After President Trump announced that the U.S. Department of Energy would purchase oil to top off the Strategic Petroleum Reserve, crude prices rallied briefly. However, the announcement is unlikely to help increase crude prices further since the limited number of barrels the U.S. could purchase is small when compared to the dramatic reduction in global crude demand as a result of reduced economic activity due to COVID-19,” AAA said.
The oil price crash has been working its way into refined products, analyst said. The continuing turmoil was evident Wednesday in other markets as well. The British pound fell to its lowest level in 35 years against the American dollar.
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The American oil benchmark, West Texas Intermediate, dropped 24% to just over $21 a barrel, the lowest price since 2003. The global Brent benchmark fell to just above $25 a barrel, a level just below January 2016. Oil prices are more than 60% below where they were at the beginning of the year, according to The New York Times.
