If you’ve filled your gas tank and gotten sticker shock in the last week, you’re not alone. Suddenly, gas prices have gone up to their highest levels in seven years.
There’s no sign of that slowing down either. Patrick De Haan is the head of petroleum analysis for Gas Buddy. De Haan says it’s simple when it comes to gas prices. The cost of oil is up.
“I'll just say the price of oil,” De Haan said. “But then the next question is going to be, well, why in the heck is oil so much higher?”
There are multiple factors to that, including decisions being made in OPEC (Organization of the Petroleum Exporting Countries), and how much oil is being released in the supply. There has also been a major increase in demand since last year when many people were staying home more thanks to the COVID-19 pandemic.
De Haan says blaming the current Biden White House for this increase is not accurate.
“If anyone wants to be upset with Biden, let's make clear that the oil production drop happened before Trump left the White House,” De Haan explains. “The big plunge in production happened in March, 2020. The pandemic started back then. But actually oil production is starting to perk back up. That's the good news, but not enough to offset what is increasingly looking like a return to normal demand and now adding into it all layers of COVID-19, a lot of shifts in consumer behavior. How many things have gone crazy in the last year? Lumber prices, produce, your home values up 20%. The same thing's happening to oil.”
De Haan says oil prices are just one facet of the global energy supply, and all of them are experiencing high prices, demand, and low supplies.
“A lot of these imbalances, and now an energy crunch happening overseas, China's coal plants, not enough coal to produce electricity, Europe in a natural gas shortages, are causing prices to rise to an all-time high. Those issues really support the rise in the price of oil. And by the way, OPEC met last Monday to discuss whether or not to further increase oil production ahead of schedule. Well, of course they didn't do that and that's why oil prices in the last couple of weeks have really jumped up to their highest in seven years.”
Oil companies are naturally beholden to their shareholders who saw large losses in the last 18 months with the extreme drop in oil prices.
De Haan says they lost a massive amount of money.
“Keep in mind oil companies lost collectively tens of billions of dollars last year, exceeding $50 billion,” he told WCCO’s Adam Carter Tuesday. “They are now just getting to the point where they're starting to see positive cash flow again. Now keep in mind too, part of the plummet in the price of oil and demand last year. Oil companies shut down. Well, they let go tens of thousands of workers. There is this thing going on in the market too, there's kind of a little bit of a labor challenge. So that enters into the picture.”
Could this be temporary? That’s up to the oil producing countries. There is no lack of resources right now. It’s all about how much they want to produce and supply.
“There's actually no restraints on oil companies” De Haan said. “They could basically go back to pre-COVID production levels tomorrow. But like I said, these complexities of hemorrhaging money last year, the labor challenges all enter into why production hasn't returned as quickly as it went offline.”