Are Gas Prices at Historical Highs?
“As they take to the road this summer, many Americans will face the highest retail gasoline prices since 2014. And demand is still likely to climb, lifting prices to new highs for the year.
The summer driving season traditionally begins with Memorial Day weekend, and drivers are starting off on a “bad foot,” says Patrick De Haan, global head of petroleum analysis at GasBuddy. Prices are already at their highest in six and a half years—and “there is potential for a little bit more pain this summer.”
The average price for a gallon of regular gasoline stood at $3.041 on May 19, the highest since October 2014, according to GasBuddy, a travel and navigation app.
The shutdown of the Colonial Pipeline earlier this month in the wake of a ransomware attack likely “accelerated” the rise in gasoline prices at the pump by a few days or weeks, says De Haan.
They topped $3 on May 12 for the first time since 2014, but that price level was likely even without the pipeline outage, he says.
U.S. oil production has been “very slow to respond,” he says, though things are starting to improve with oil drilling rig counts up and production rebounding. Total U.S. petroleum production stood at 11 million barrels a day for the week ended May 14, while the Organization of the Petroleum Exporting Countries and its allies agreed to gradual oil output increases that began in May. “A lot of Americans are landlocked to the U.S. this summer,” stuck stateside even as some foreign destinations are opening up, says De Haan, leading to more gasoline demand.
A recent GasBuddy survey showed that 57% of Americans plan to take at least one road trip this summer, up from 31% in 2020, but the “biggest roadblock” is high gas prices.
The national average is expected to be $2.98 on Memorial Day, up $1.02 over the holiday weekend a year ago, and the highest for Memorial Day since 2014, according to GasBuddy.
De Haan believes that while gasoline is “probably in the seventh or eighth inning of the price rally,” there is likely a “little bit more upside” to prices. The peak may come later this summer, potentially July to August, instead of the usual peak for the year in March to May, he says. If summer demand is very high, it’s not impossible for prices to go up another 10 cents to 20 cents a gallon, he adds.
Prices at the pump could climb even higher than that, as “travelgeddon” takes hold, says Jay Hatfield, founder and CEO of Infrastructure Capital Management, referring to the greater number of people expected to travel by car and plane—boosting fuel consumption—as Covid vaccinations accelerate.
Hatfield says his company expects U.S. oil output to stay “relatively flat” at just over 11 million barrels a day this year, despite higher oil prices, as U.S. producers “focus on free cash flow, as opposed to production growth.”
That would mark the first time since 2014 that the U.S. doesn’t significantly ramp up production in response to higher prices, he says.
Meanwhile, he points out that higher gasoline and oil prices are also a “function of the worldwide move to limit carbon emissions.” As more environmental, social and governance-oriented investors dominate capital markets, energy companies are “limiting investment in production,” says Hatfield.
The International Energy Agency has said the world must stop investing in new oil and gas wells to reach ambitious climate goals by 2050.
Oil output cuts may lead to higher oil prices, driving average gasoline prices over $3.50 this summer, says Hatfield, adding that if there is a supply disruption, prices may spike above $4.”