When the COVID-19 pandemic struck last year, sending much of America into lockdown, fuel prices dropped to levels not seen in decades — in some cases, motorists paying less than $1 a gallon during late spring 2020. Now, however, with Americans again “itching” to travel, fuel prices are rising fast, with no clear end in sight.
Regular self-serve unleaded was going for $3.288 a gallon as of Wednesday morning, reported AAA, and petrol price trackers are seeing spikes approaching $5 or more a gallon in several states. Prices, on average, are up by about 50% compared to a year ago. And there’s no end in sight to the ongoing surge in fuel costs.
“The future, at least for the next several months, is grim,” said Patrick De Haan, head of petroleum analysis for GasBuddy.com. “So, in all likelihood, Thanksgiving and Christmas (prices) will be at their highest level in seven years.”
One clear indication of what’s to come is the way crude prices are spiking. Early in the pandemic, the world was awash in oil. There was so much, in fact, that prices officially fell into negative territory. Traders were paying as much as $40 a barrel to get rid of what they were shipping, long lines of tankers anchored off America’s coast with nowhere to offload their shipments.
At noon on Wednesday, the benchmark Brent Crude was trading at just over $82 a barrel, up a full 60% from the start of this year, and about $10 over its mid-September price. During the same period, regular gasoline has gone up 11 cents. And It’s more than $1 over the $2.181 the typical U.S. motorist paid Oct. 13, 2020.
While there are a few places, such as Texas and Oklahoma, where gas is still running under $3, it is averaging above $4 in California and along most of the Pacific Coast.
It could be worse … maybe
If there’s a silver lining it’s that motorists are paying well under the record $4.114 a gallon national average set back on July 17, 2008, according to AAA. But the question is how much closer to that number prices might creep.
“Last week’s decision by OPEC and its oil-producing allies to not increase production further only exacerbated the upward momentum for crude oil prices,” AAA’s Andrew Gross said in a report earlier this week.
The members of OPEC cut production by a collective 10%, or 10 million barrels a day, as demand tumbled while the pandemic spread last year.
But OPEC, alone, doesn’t deserve sole blame. U.S. producers cut even more sharply, at least on a percentage basis, from 13 million to 10 million barrels a day, noted De Haan. And they’ve only partially reversed those cuts.
In today’s highly politicized environment, some are pointing fingers at President Joe Biden for the current surge in fuel prices. De Haan said that is no more accurate than giving former Commander-in-Chief Donald Trump credit for the declines during his watch.
The reality, the analyst stressed, is that the situation “all rolls up under COVID.” When the pandemic struck, petroleum producers shut down wells and laid off thousands. Now, as with so many other industries, they simply can’t find enough manpower to get things back to normal.
Tankers are again lined up off America’s coasts, unable to offload, but that’s because there isn’t enough manpower at the nation’s ports. And, even when they do get emptied, the challenge is to deliver refined fuel to service stations.
The National Tank Truck Carriers, a trade group, reported during the spring that 20 to 25% of gasoline tankers were sitting idle, with no one available to put behind the wheel. And, if anything, trucking companies are finding it difficult to replace drivers who continue to quit or retire in large numbers. If anything, the number of drivers who quit the business accelerated in 2020 as demand for fuel plunged and tanker companies cut work schedules. There are simply not enough replacements lining up.
Drivers also deserve blame
If anyone deserves blame for the gas price spike, suggests De Haan, it’s “the 330 million Americans who have been just itching to get out of their houses.” Even though millions continue working from home, he notes U.S. motorists have taken to the road again in such large numbers there were actual fuel shortages in some high-traffic vacation areas, such as Orlando and Las Vegas, earlier this year.
The U.S. actually has escaped relatively unscathed. Britain, which has also seen travel rebound since early in the pandemic, continues to struggle with fuel supplies. The UK actually has plenty of crude and a relatively full inventory of refined “petrol.” But it is also short of the drivers needed to get that gasoline to pumps.
With up to 90% of British petrol pumps running dry at various points throughout last month, demand for battery-electric vehicles surged. September BEV sales fell just 5,000 short of what British motorists bought in all of 2019, according to industry data.
“The petrol crisis was temporary but the impact on consumer attitudes is not,” said Ian Plummer, commercial director for the British arm of Auto Trader. “The idea that you’ll always be able to fill your tank has gone out the window.”
Accelerating the shift to EVs
The current jump in U.S. fuel prices is raising questions about whether that could accelerate demand for electrified vehicles — sales of pure battery-electric models already more than doubling during the first half of 2021.
“High fuel costs help accelerate” the switch from gas-powered vehicles to EVs, Brent Gruber, J.D. Power’s senior director of global automotive, said during a media webinar Tuesday. Rising pump prices, combined with a growing line-up of products, could help boost EV sales in the U.S., he added, though likely not to the degree the shift has gained traction in the UK.
At the same time, GasBuddy’s De Haan said rising EV sales actually could impact the price of gasoline going forward. While he stressed that he had no inside knowledge, De Haan said he wouldn’t be surprised if OPEC and other petroleum providers recognize their market will start fading out over the coming decade and thus try to maximize profits while they still have the opportunity.