Not too long ago, 2023 began with one of the biggest weekly drops in energy prices in years. Now gas station prices tell a different story.
Consumer gasoline prices have jumped even though we are in the middle of winter when demand is usually at its lowest. The AAA reports that the national average gas price is $3.42 per gallon, while here in Texas it is $3.04.
Matt Smith, lead oil analyst for the Americas at Kpler, spoke to the Standard about the factors affecting gas prices. Listen to the story above or read the transcript below.
This transcript has been lightly edited for clarity:
Thus, the national average gasoline prices fell to almost $3 per gallon in December, but they are rising again. Prices in Texas seemed to be around the $2.70 mark. And now I regularly see them on the pump closer to this $3 level. What’s happening?
Matt Smith: Yes, bad news. Thus, the average for Texas again exceeded $3 per gallon, up $0.40 from last month. So there are a number of factors at play here. So we had a winter storm at the end of last year, the so-called bomb cyclone. You know, this has disrupted a significant part of the US refinery capacity. And, in fact, refineries are not designed to operate at lower temperatures, so they took the brunt of the blow there. But, in your opinion, gasoline prices depend on seasonality. Demand is low right now, but it tends to pick up in the spring when refineries do maintenance, when we switch from winter mix to summer mix, which is more expensive because it has more additives to work at higher temperatures. So higher temperatures are potentially expected here.
Yes, but it’s not spring now, and we already see these spikes on the pump. I mean, are the processors trying to ramp up the pace in anticipation of spring? Is this part of the fact that we are now returning, generally speaking, to pre-pandemic levels of driving? How do you understand it?
Thus, the loss of these refining capacities, albeit for a temporary period, caused a much stronger increase in the stock price of gasoline. Thus, over the past couple of weeks, it has grown by more than 20%. But on the demand side, interestingly, demand is weaker. So weekly government data pegs demand for a decline of more than 4 ½ percent year on year on a four-week moving average, while monthly data — which is more accurate but more LACT — shows demand during the first ten months of last year. on par with the previous year. So 2021, which is still in a pandemic but 550,000 barrels per day below pre-pandemic levels, about 6%.
Now, it’s probably due to a combination of people working from home, buying more online, improved fuel efficiency in new cars… But most importantly: the penetration of electric vehicles. Thus, electric vehicles accounted for 5.8% of all new car sales in the US last year, up from 3.1% a year earlier. It turns out that the peak demand for gasoline in the United States has passed.
I’m curious about something. Last year, President Biden activated the Strategic Petroleum Reserve to try to bring down oil prices, and it seems to have had some effect, depending on how you read this. With prices rising again, do you think the President will use the SPR?
No. You know, last year these strategic reserves were reduced so much. We started with almost 600 million barrels and ended the year down over 200 million. So it just can’t happen again because we need to keep reserves to cover any unexpected supply shocks, which is the purpose of reserves in the first place. Thus, the inability to use these reserves means that US commercial oil inventories are likely to be significantly reduced this year, which, unfortunately, could lead to support for oil prices and, therefore, support for gasoline prices.