GasBuddy is warning motorists that the national average may breach $3 per gallon by Memorial Day after the Organization of the Petroleum Exporting Countries’ meeting on March 4 closed with no meaningful increase in oil production.
The group’s large cuts to oil production in 2020 will generally be extended, with just Russia and Kazakhstan granted small exemptions to raise oil production by 130,000 barrels a day and 20,000 barrels a day, respectively. In response, crude oil prices rose to fresh highs, with a barrel of West Texas Intermediate crude oil nearing $65 per barrel, the highest level since 2019.
The last time the national average reached the $3/gal threshold was over 2,300 days ago, on October 10, 2014, but did get close in 2018, when the national average reached $2.97 per gallon.
Much of the reason oil prices have their strongest chance to reach $3 in years comes due to OPEC’s delay in raising production to meet the global rise in demand. As vaccines have spread country to country, demand for oil has rebounded notably. Early in the pandemic, OPEC cut some 10 million barrels per day of oil production, which largely remains the case today, as OPEC has not yet responded in kind to the rebound in global demand.
“The outcome of today’s OPEC meeting lends to a running of the bulls in oil markets, as global oil demand rebounds amidst recovery in the COVID-19 pandemic while OPEC, which controls a third of global production, balks at the recovery and maintains extreme production cuts,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Extending the production cuts maintains a growing imbalance between demand and supply, and puts more pressure on oil prices to rise, should global demand continue to recover. A continued recovery seems likely, led by American motorists filling their tanks at the fastest pace since the pandemic began. I predict the national average now has 70% odds of reaching $3 per gallon, a level not seen since 2014, primarily due to OPEC’s opposition to raising oil production.”
The decision by OPEC not to increase production comes as Americans are increasing their appetite for fuels. According to Pay with GasBuddy data, gasoline demand last week reached the highest level in nearly a year, rising 15% from the prior week and now just single digits away from gasoline demand pre-pandemic. Gasoline demand has continued to rise in all of the nation’s five PADD regions, as defined by the Energy Information Administration.
U.S. production has also been cut drastically after the pandemic curbed demand and pushed oil companies to lose billions of dollars, costing thousands of jobs in the oil sector in the process. It is worth noting that of President Biden’s recent decisions to rescind the Keystone XL pipeline and end approval of new leases on federal land, neither of those is playing a role in today’s rising oil prices: there is no shortage of pipeline capacity and U.S. producers aren’t racing to install new rigs on federal land, since some existing wells remain shut down, it would make little sense for companies to look to purchase new leases to drill.