Some Experts Warning US Drivers To Get Ready For $4 Gasoline
NORTH TEXAS (CBSDFW.COM/CNN) - Americans across the country have been paying higher prices at the pump. And if the Omicron variant doesn't result in another round of widespread lockdowns or crackdowns on social gatherings, some experts say Americans can expect to see gas prices nearing $4 a gallon in dozens of states this year.
To be sure, the crude oil prices that provide much of the raw cost for gasoline trended higher for virtually all of 2021. In October, Brent crude, the global benchmark for oil, hit a high of $85.76 per barrel and the US benchmark West Texas Intermediate (WTI) reached $85.64 per barrel.
Wholesale gasoline usually trades some $10 to $20 per barrel higher than crude oil. That difference could soar to $40 to $50 per barrel or more this year if Omicron wanes and gasoline demand moves even higher.
Many have blamed President Biden for the higher energy prices. Yes, he revoked the permits for the Keystone XL pipeline, which would have moved more Canadian oil from Alberta to Nebraska. But existing pipeline expansion projects have and will move more Canadian crude to the US. Biden's war on carbon may impact prices, but not until the second half of his term. Once the country really starts moving away from fossil fuels, it will be expensive and painful.
One of the real drivers behind surging crude — and subsequently gas prices — was that OPEC and other countries, most notably Russia, only gradually increased oil production. These countries kept millions of barrels off markets with well-crafted quotas. Meanwhile, in the United States, bankers have kept their investments in oil exploration companies on a tight leash, not wanting to create a third boom-and-bust cycle. As a result, less capital for US crude has kept production well below record levels.
But other factors will be at play this year that could cause gasoline prices to spike even further.
New Blends
Each spring, the US gasoline industry must flush out winter gasoline and replace it on the fly with summer blends. That's because some of the cheaper ingredients that can be used in colder weather wreak environmental havoc in warm weather months. This "rinse-and-replace" cycle takes place against the backdrop of refinery maintenance and daily consumption of more than 300 million gallons. The US distribution system has to see its volatile winter gasoline sold in March through May and replace it with the less volatile and more expensive summer gas.
Fewer Refineries
Refineries across the US, Canada and the Caribbean have been scaling down capacity, being repurposed or closing completely.
Some unprofitable Gulf Coast plants were shut down last year after Hurricane Ida. Other refineries are being converted to manufacture biofuels from vegetable and animal oils. And others have closed down in California, Wyoming and Newfoundland to make way for new state-of-the-art plants coming onstream in the Middle East, Southeast Asia and Nigeria.
Across the Atlantic, European refineries are already hamstrung by lower demand — due to lockdowns and an emphasis on the adoption of electric vehicles. Additional refinery competition in 2023 will lead managers to shut down units before some plants become "stranded assets."
The increases in gasoline prices seen this year were dramatic, yes, but gradual, and had very little impact on purchases. Consumers didn't spend nearly as much of their household budgets on gas as they did in years past.
However, we could see consumers scaling back even further on gas purchases if crude prices hit $100 a barrel or more. Even if they hit $85 to $90 a barrel, it's likely we'll see $4 per gallon-plus prices this spring.
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