“Expect the best, plan for the worst, and prepare to be surprised.” -Denis Waitley
Life is full of surprises. For good or bad, all of us face the unknown and deal with what comes our way. Right now, the world is dealing with a lot of “firsts” and we are right in the middle of everyone trying their best to get to through to the other side. Let’s take a look at what’s been going on and what we can expect coming up.
The average price of gasoline rose this week to $3.53 - a whopping $0.55 increase from just last week. Every state saw massive price movements this week, with the average increase being around $0.37, while states like Florida and Ohio have seen their prices rise by over 60 cents.
While we’ve already seen a massive jump in prices, I’m expecting this trend to continue over the next week and month, with prices rising to $3.75 and $4.25, respectively.
Driving Factors this week:
Iran War and Global Supply Disruptions
Seasonal Transition to Summer-Blend Gasoline
Pre-emptive Stockpiling and Surging Demand
As with any auction market, when people get desperate to buy an item (oil) they willingly bid higher than the next bidder in order to secure the item. Some countries, especially in Asia, have very low reserves of crude oil and other fuels (like gas for heating homes) and they are becoming more and more desperate to get their hands on the limited oil that is available. This has led to oil prices globally rising an average of ~$3 per barrel, per day, since the war with Iran began a couple of weeks ago, rising from $65/barrel on Feb 26th to $96/barrel today. And as we know, when oil prices rise, so do gasoline prices.
Along with the decrease in supply of oil in the world right now, as the weather gets warmer we also get an increase in the demand for gasoline across the US as people head out to enjoy the warmer weather. Many schools are also starting their spring breaks, which pushes up demand, and prices, for gas. It’s possible that with our current increase in gas prices some people may decide not to do their spring break road trip, but economists don’t feel like prices have risen enough yet to really curtail consumer plans.
Locally, our 5 Utah refineries continue to produce at around 94% of capacity, which we consider to be essentially full capacity. These refineries produce almost all of the gasoline consumed in Utah and Idaho, and provide a good amount of gas to our other neighboring states, too. Having our refineries in our backyard does provide a bit of a buffer to changing oil and gas prices, but we also risk large spikes in gas prices if one of our refineries has unexpected production issues. But as of today, they’re humming along great.
The Crude Crystal Ball: Forecasting Prices
Continued Supply Disruptions in the Middle East
More Drivers on the Road Due to Spring Break and Warmer Weather
More Refineries Producing a More Expensive Summer Blend of Gas
I fully expect gas prices across Utah to continue to rise over the upcoming week, but at a slightly slower pace than last week. Oil prices are likely to continue to rise as long as supply is limited out of the Middle East, and right now there is no clear end in sight to the war. The US government is trying to control oil prices through a lot of different means, but there is no policy strong enough that can overcome the power of basic Supply& Demand dynamics.
While many countries are pledging to release some of their strategic reserves to help keep oil prices from getting out of hand, that process takes many weeks, to months, and is not going to help curb price increases in the near term. That is why I’m expecting prices to rise in Utah to $3.75 this next week and $4.25 in a month.
The "Future Fuel" Math: Why Gas Prices Spike Instantly
Did you know? Most gas stations make more profit selling you a large coffee or a bag of chips than they do on a full tank of gas. Because their margins on fuel are razor-thin, they have to be hyper-focused on replacement cost. If they don’t raise prices the moment wholesale costs go up, they literally won’t have enough cash in the bank to buy the next shipment of fuel when the tanker truck arrives.
It feels like a rip-off when pump prices jump overnight, but it’s actually a survival tactic. Gas stations don’t price fuel based on what they paid for it last week; they price it based on what it will cost to buy the next delivery. If wholesale prices spike today, the station raises its price immediately to ensure they have enough cash to refill the tanks tomorrow. Essentially, you aren’t just paying for the gas in the ground, you’re funding the shipment that’s already on its way.
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-Mark Acor, [email protected]