CrudeIQ: Vol. 5

A lot has happened this last week in the oil and energy markets. Like, sooo much happened.

This edition is coming out a day late because I’ve had a hard time trimming it down to a manageable length. With so much going on, and with so much contradictory information coming out, I’m only including facts I have confidently verified from multiple sources. If you have specific events/topics you’d like me to research and expand on, please reply to this email and let me know!

Gas prices rose an impressive $0.19 over the past week. While minor factors like increasing demand, slightly lower local refinery output, and refineries switching to their summer blend of gasoline have all had upward pressure on gas prices, the bulk of the heavy lifting this week was done by crude oil supply issues coming out of the Middle East. With no clear end in sight to the conflict, I’m expecting gasoline prices to continue to rise across the state for at least the next couple months. How far gas prices end up rising is anybody’s guess at this point.

We all know it’s a bit of a mess at the pumps right now, but Utah is actually holding its own better than most. We just saw a 19 cent jump in a single week, which is huge for us, but we’re still sitting under three bucks while the rest of the country is pushing $3.25. Our local refineries are acting like a nice little buffer, and while the state just passed a six-cent tax cut, we won't actually see that kick in until July.

Globally, the "Operation Epic Fury" situation in the Middle East is the real elephant in the room. With the Strait of Hormuz effectively closed, 20% of the world’s oil is in limbo, which is why crude prices are quickly making their way into the $80+ per barrel range. To make matters worse, we’re right in the middle of spring refinery maintenance and the pricey transition to summer-blend gasoline. We might see things cool off by April if OPEC+ follows through on increasing production, but for the next while, I’d expect those prices to keep creeping up.

55% of the cost of our gasoline is based on the price of crude oil. When I look at forecasting our gas prices over the next week and month, understanding where the price of crude oil is headed is always the biggest factor I consider. Over the last week we’ve seen infrastructure in the Middle East damaged in ways we’ve never seen before, so trying to predict how this is going to play out is anyone's guess. 

However, we know global crude oil and natural gas supplies have already been significantly restricted and countries are already feeling the pinch. Inventory levels are dropping and aren’t going to be refilled anytime soon. It’s clear that in the short run we’re going to see prices increase as supply struggles to keep up with demand.

HB 575 was signed into law by Governor Cox this past week. Think of Utah’s new HB 575 as a "double-shot" of relief for your wallet and your gas tank. First, the state is making a direct play to lower your daily costs by cutting the state motor fuel tax by 15% (or $0.06/gal) starting on July 1st of this year. But the real long-term win is the "abundance mindset" shift: the bill clears out the red tape for pipelines and storage, aiming to pump an extra 800k gallons of gasoline into the Utah market every single day.

By boosting supply and streamlining how energy infrastructure gets built, the state is looking to create enough competition to keep those price spikes at bay for the long haul. It’s basically the state saying, "We’re tired of being at the mercy of the market; let's just build our way into lower prices."

As with all things, how this gets implemented, and the resulting positive and negative externalities, remains to be seen.

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-Mark Acor, [email protected]