Gas Prices Are Low And Could Get Much Lower
Bloomberg recently pointed out that OPEC+ has struggled to keep the price of oil above $75. The lack of success has kept gas prices relatively low. Absent a war in the Middle East and the supply interruption it could bring, the gas price could fall again.
Bloomberg reports, “After abandoning its pursuit of $100-a-barrel oil in June, OPEC+ faces a new challenge. Increasingly, the market is testing its downside tolerance. In short: Can Saudi Arabia, Russia and their peers defend a floor around $75? It can for a few weeks, or maybe two or three months.” The problem is unusually high supply and a weak Chinese economy. This has been somewhat offset by US consumption.
US production has also become a player in the oil price game. In December, the US produced more oil in a single month than any country has in any month in history. The reason is shale. Daniel Yergin, vice-chair of S&P Global and a Pulitzer Prize-winning energy historian, recently told the FT, “It has changed not only the supply-demand balance but also the geopolitical balance and the psychological balance.” The largest oil companies have begun consolidation.
About 80% of the price of gas is due to oil prices. The balance is due mainly to refinery salability, transportation, and state taxes. The average price of a gallon or regular nationwide has been about $3,50 for almost a year. Over that period, crude was above $80 on most days. It recently dropped to under $74. Gas prices are coming down. The exception may be California, where gas prices are above $5.
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