As Russia began positioning forces for an unprovoked invasion of Ukraine at the end of 2021, oil speculators did what oil speculators do in every potentially difficult situation: They drove oil future prices up. A week before the invasion began on Feb. 24, 2022, prices for West Texas crude had already been elevated by $20 a barrel to over $90. By the first week of March, prices were over $120 a barrel and some energy insiders expected that to be only the beginning of a new “oil rally.” As Bloomberg reported at the time, energy markets were very excited by the war.
The prospect of restrictions on Russian energy exports could send oil prices above $200 per barrel, according to Westbeck Capital Management. The London-based hedge fund is among a cadre of commodities-focused funds betting on an extended rally for crude after Russia’s invasion of Ukraine.
Here’s hoping tons and tons of those speculators laid down their billions betting on $200 oil, because just a week later prices began to fall. By the end of August, prices for oil were actually below where they had been when the invasion began, and in the last week have traded as low as $76 a barrel.
Despite Republican claims that President Joe Biden has somehow crippled the U.S. oil industry, both production and refining of oil in the U.S. is now at near-record levels. The supply of oil and gas is currently down less than 1% when compared with 2021, and though gas prices have remained relatively high over much of this time, they have now fallen to an average price below that on the day Russia invaded.
One of the claims Republicans keep making is that Biden has emptied the national petroleum reserves. However that reserve is actually only about a third down from the average for this date over the last five years, according to the latest estimates from the Energy Information Administration. Both that reserve and private storage are recovering, with the overall crude oil storage now down less then 3% when compared to 2021. Expect both of these storage levels to return to full in the next few months with no more need to use reserves to control prices.
This past year also saw a record amount of ethanol blended into gasoline, increasing the supply in many areas. With refineries running full out and ethanol blending in, gasoline inventories are only 0.8% below 2021, while demand for gas is down by 2.7%.
The result of that supply outpacing demand is finally showing up at the pumps. AAA reported the average nationwide price of a gallon of regular Wednesday had dropped to $3.50, with many areas significantly lower. National average prices are expected to fall below the $3 level in the next few weeks, as projected by GasBuddy.
Gas prices are now actually lower than they were on the day Russia invaded Ukraine. Over the next few weeks, much of the runup to the conflict is likely to be factored out of the market, returning prices to where they were in 2021. This should not only result in more money remaining in the pockets of drivers, it should relieve inflationary pressure related to transport of parts and products. It should, if corporations don’t just decide to turn the difference into still more profits and dividends.
Oil prices routinely topped $100/barrel in the period from 2011 to 2014 before increased production of oil related to fracking drove prices to around the $60 level between 2014 and 2020. Now that Russian oil has largely been factored out of international markets (and Russian oil that is making it to market is entering at a sharp discount) oil prices can be expected to settle back to a similar level.
This will not, of course, prevent Republicans from citing gas prices from early 2020, when panic selling related to the pandemic drove oil prices down to just over $20/barrel and dropped gas prices below $2 … for about a week. And it won’t stop news agencies from snapping photos of gas prices in the rental car return lane at San Francisco International (strangely enough, the last photo from Getty showing prices on a gas pump shows a price of $6.13).
Neither of them is about to let go of a good fake crisis right before Christmas. But folks driving home for the holidays will appreciate the reality.
No comments:
Post a Comment