Gas prices: ‘We’re at a record-setting summer,’ analyst says
GasBuddy Head of Petroleum Analysis Patrick De Haan discusses the latest increase in gas prices ahead of Memorial Day Weekend.
- Surging gas prices could disrupt summer travel plans for millions of Americans as prices soar at the pump. Now the national average hovering near an all time high, inching closer to 5 bucks a gallon. Right now it's at 4.59. For more on this, we wanna bring in Patrick de Haan. 4.60 it looks like today.
Patrick de Haan, GasBuddy's Head of Petroleum Analysis. Patrick, I think the big question every single American is asking right now is, how much worse could this potentially get? We heard from JP Morgan. They're saying it could be over $6 by August. What are you seeing?
PATRICK DE HAAN: Well, you know, nothing's really off the table. I think 6.20 a gallon is probably not going to happen, but it's not impossible either. We have a very unique set up this summer, very tight oil supply as a result of Russia's war in Ukraine and sanctions on Russian oil.
In addition, we're talking about a nation that has seen a million barrel a day capacity at refineries gone from where we were three years ago, so less ability to refine as much product, and a very insatiable appetite for Americans to hit the road this summer. 58% of respondents to our GasBuddy Summer Travel survey said they'll be hitting the road even in light of record high prices, which, amazingly, is a higher percentage than what we saw last year.
- That is incredible how it's not impacting demand, Patrick, but let's look ahead to the summer months. Do we have any studies that show, as prices climb, how demand may fall with it?
PATRICK DE HAAN: Well, we are seeing demand that certainly is not as strong as it was prior to COVID in 2019 when prices were much lower. I don't think that's going to change. We are not in for a record-setting summer when it comes to gasoline consumption, but we are at a record setting summer for prices. And it's partially because of that reduced refining capability that prices will likely remain elevated in light of demand that's relatively weak compared to the last few years.
- Hey, Patrick. I'm curious to get your thoughts on the Biden administration, what we've heard from President Biden when it comes to lowering gas prices. Now there's reports that Biden hasn't ruled out using export restrictions to ease soaring prices. How big of an impact do you think this could potentially have?
PATRICK DE HAAN: Well, it's all in the details. Obviously US oil companies would be very sensitive to export limitations. Keep in mind, a lot of US oil companies export oil that they can't utilize at the refineries and import oil that they can utilize.
And so to put a bottleneck in place that doesn't allow the free flow of oil may, number one, hurt refineries' ability to refine oil, but it may disincentivize oil producers and refiners from producing as much product as they otherwise would. So the administration has to walk this very carefully. I understand the temptation. The US exported over 10 million barrels a day of refined product just in the last week, or 70 million barrels total, but this is something that is very nuanced.
- Of course, the price at the pump we feel every time we fill up, Patrick, but diesel prices we necessarily don't, although we feel it when we pay more for food and groceries and clothing because it's really a part of everything that we buy. They are also at a record high, 5.54. I know the Biden administration has talked about tapping emergency supplies, talked about loosening environmental rules. How much impact do the diesel sales have on the economy, and how high do you go? Because JP Morgan-- one JP Morgan analyst said 6.20 by August.
PATRICK DE HAAN: Well, I'm hopeful we won't get there for gasoline. Now if all the stars are aligned, it's possible. I still think it's very improbable that gas prices would climb another dollar 0.60. But on your point about diesel, I mean, we've seen how it's implicating or causing harm at the retail level. Walmart and Target citing challenges with logistics, and the high price of diesel and fuel is hurting their bottom line, and this isn't going to disappear. And part of the story here is what I had mentioned.
That drop in refining capacity, the same time Europe has also seen a drop in refining capacity at a time of economic rebound. So this is a situation that the President really doesn't have the capability to build a refinery overnight, or to increase oil production overnight, right? All of these supply challenges are hurting things. Having said that, if the President does make moves, it would likely take years for that to help alleviate high prices at the pump. So this is something we'll be stuck with, I'm afraid, most of the summer.
- Patrick, when you take a look at the rig count-- and I was looking at a recent tweet that you just put out. You were saying that US rig count has been rallying, last week touching those pre-pandemic levels. How meaningful is this?
PATRICK DE HAAN: Well, you know, it's a leading indicator of what may happen in the months ahead. It's certainly not a guarantee, right? It just shows that oil companies are increasing activity, increasing interest in drilling for more oil, and potentially bringing that oil to market. But the total rig count, including oil and gas rigs, is now 234 higher than it was a year ago. So these are the signs that the industry is moving, right? The locomotive is picking up steam. But unfortunately, as we are finding out, it takes years to get the increase in drilling activity to translate into more US oil production.
- So is the only hope right now an end of the war in Ukraine?
PATRICK DE HAAN: Well, and even that is fraught with questions, such as, do we go back to investing and doing business with Russia, and how quickly? So even an end to the Russian invasion of Ukraine doesn't necessarily rubber stamp price relief here in the US. I think the best outcome that would bring most meaningful relief is out of our control, right? It may be in the Russian hands, and that's regime change may give confidence of Western companies and companies-- and countries, rather, can start doing business and buying that Russian oil again.
- And that is such a huge question moving forward. Will we return to doing business with Russia after the invasion is over? Patrick de Haan, GasBuddy Head of Petroleum Analysis. Appreciate you joining us. Thank you, sir.