The road to the summer is paved with higher gas prices, and Patrick DeHaan with Gas Buddy called into WCCO to explain why.
"Gasoline demand last week was the highest it's been since the pandemic started," DeHaan said, adding that "supply has not responded."
"We're at a place where demand has come roaring back and left production numbers in the dust. Supply is still at low levels," he explained. At the same time, OPEC has decided not to increase production in the interest of caution against emerging variants of the coronavirus, which could cause new rounds of economic pain.
Minneapolis drivers are now paying an average of $2.69 per gallon for regular unleaded, up from $2,28 a year ago. The St. Cloud Times reported the most expensive counties to buy gas on Friday were Dodge and Chippewa, where prices average $2.80.
And that price could hit $3 across the state this summer, which "will feel like a sting," DeHaan said.
This comes as oil companies lost more than $50 billion last year as the pandemic slashed the demand. Thousands were laid off in the aftermath of the pandemic, and many of those jobs haven't returned. Add to the fact ice and snowstorms in the Gulf Coast shut down refineries and halted 40% of gasoline production last month. Prices of crude oil, from which gas is made, have also increased $15 since the beginning of the year, he said.
"You could argue oil companies are still in survival mode," DeHaan said, explaining why supply is not ramping up as fast as it could to meet demand.
Gas prices, of course, are driven by supply and demand and according to new data from the Energy Information Administration (EIA), total domestic gas stocks decreased by 13.6 million bbl to 243.5 million bbl, as demand increased from 7.2 million b/d to 8.15 million b/d last week.
At the close of Thursday’s formal trading session, WTI increased by $2.55 to settle at $63.83. Crude prices increased last week after the Organization of the Petroleum Exporting Countries (OPEC) decided with its allies, including Russia, to maintain existing crude production cuts of 7 million b/d through April.
Additionally, Saudi Arabia — a member of OPEC — agreed to extend its voluntary production cut of 1 million b/d by one month. Crude prices have increased despite EIA’s latest weekly report revealing that total domestic inventories grew by 21.6 million bbl to 484.6 million bbl.
“The National average increased five cents compared to last week,” said Adrienne Woodland, spokesperson, AAA-The Auto Club Group. "If crude prices continue to rise alongside tightening gas supplies ... motorists could possibly see higher pump prices this month."
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DeHaan says he doesn't have a crystal ball, but he also envisions prices rising to the point it may develop into a bubble.
"I feel quite bullish right now. My wallet does not enjoy the fact my brain is telling it to prepare to spend more at the pump. I could very much see and feel like a bubble is developing," DeHaan said. "Commodities are just very high right now. You add in more stimulus, which President Biden looks poised to do, and that may heat the economy up to a tipping point."
Daily national, state, and metro gas price averages can be found at GasBuddy.com.