Are Oil Prices Going Down – With oil and gasoline prices stubbornly high, consumers are struggling while many producers and refiners are making big bucks.
TEXAS, USA – With gas prices on the rise, we recently detailed several ways drivers can get more mileage out of the increasingly expensive fuel in their vehicles.
Are Oil Prices Going Down
Since then, prices have risen even further; and many people have been asking when this will get better. We asked University of Houston energy fellow and economics professor Ed Hirst for a prediction, and he didn’t have good news on that front: “I expect gas prices to remain high during the conflict in Ukraine.”
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Russia’s invasion of Ukraine has wreaked havoc on gasoline prices globally. And Professor Hirst says major oil-producing countries around the world have not done nearly enough to make up for the supply shortfall that was created when Western countries punished Russia for its invasion by cutting off its oil exports.
Most of the price of gasoline is determined by the price of oil. And oil is very expensive right now. Some think it would get cheaper if there were more rigs drilling for more oil. But Professor Hirs says this is not happening nearly as much as it should.
“What I was looking at was not the number of devices in the US…the number of international devices in the Middle East. The rig count is down more than 25% from where it was before the pandemic. It has been really slow to recover in the Middle East. “I’m not sure OPEC has enough new production coming online to replace the production they’re selling,” Hirs said.
According to Baker Hughes, there were 718 new rigs drilling for oil in the US in May 2022. That’s down significantly from the 986 rigs that were operating in May 2019. in May this year, also down significantly from the 410 rigs operating in May 2019.
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But why don’t oil companies want to drill more? Prof.
In the first three months of this year, “Big Oil” made really big money. However, it’s not just the manufacturers. Refiners are dumping it, too… in part because the number of U.S. refineries turning oil into gas fell again last year.
In fact, the number of US refineries has been declining for decades — even as consumers need more gasoline. According to the US Energy Information Administration, there were 301 refineries in the US in 1982. That number fell to 153 by 2002 and then to just 130 refineries in 2022.
And this article doesn’t offer much hope that new refineries will be built in the US, as companies are reluctant to make significant investments in fossil fuel projects at a time when consumers and producers are moving toward greener options. Also, under the current status quo, refineries are making handsome profits.
Concept Of Oil Prices Fall, Black Barrels And Graph Down Stock Vector Image & Art
In still-operating refineries, when they crack oil into different types of petroleum products like gasoline and diesel, there is something called “crack propagation.”
It shows how much money refineries can make by subtracting what they paid for crude oil from how much they can charge for the refined petroleum products they make from it. Not surprisingly, the spread of crack (the money they make) goes up directly, as the price of gas does the same. The war rages on, with little hope of relief for the Ukrainian people. For Americans, the biggest impact has been on gas prices, which have climbed about 80 cents a gallon in just over two weeks.
But worst-case fears of a permanent 1970s-style energy crisis are beginning to fade. A myriad of forces are pushing oil prices lower — from China’s new COVID-19 lockdowns, which are likely to dampen demand, to a possible restart of the Iran nuclear deal, which would put more Iranian crude on the market.
Oil rose 34 percent to nearly $124 a barrel from February 23, the day before Russia launched the attack, to March 8. barrel on Tuesday, or 5 percent above the price before the invasion.
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As we have seen so often in the past, gasoline takes longer to reverse a price spike than crude oil. But at least pump prices have stopped climbing and they should start falling gradually, barring any nasty surprises.
“The decline in #gasprices should accelerate and if oil stays in double digits, the national average could dip below $4/gal in the coming weeks.” Stations have lost their shirt upside but now margins are improving and they will start passing the rebates on to you,” Patrick de Haan, head of oil analysis at GasBuddy, tweeted on Monday night.
In Massachusetts, the average price of regular gasoline was $4.34 a gallon Tuesday, down 2 cents from a record high on March 11, according to AAA. But the cost of filling the tank remains 24 percent higher than a month ago.
At such times, many people complain that gas stations are insulting consumers. And it’s true: Many retailers are taking advantage of oil market volatility by gradually lowering pump prices even as the price of crude oil falls faster.
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Like it or not, that’s how business works. Remember that selling gas is a relatively low margin business. Over the past five years, gross margins have averaged 27.2 cents a gallon, or 10.7 percent, according to NACS, a trade group for gasoline retailers.
Of course, there are gas stations that compete aggressively on price. While the national average barely budged, cheaper gas can be found.
“I can tell you that the off-price retailer, where I almost always buy gas, has already dropped their price by about 25 cents,” said Mary Maguire, director of public and government affairs at AAA Northeast. “A service station that is completely dependent on gasoline sales can keep prices higher for longer than a retailer with alternative sources of revenue, such as a car wash or convenience store.
It could take about six weeks for the drop in crude oil prices to show up widely at gas stations. When Russia invaded Ukraine last spring, energy experts predicted that oil prices could reach $200 a barrel, a price that would send shipping and transportation costs into the stratosphere and bring the global economy to its knees.
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Oil prices are now lower than they were when the war began, having fallen more than 30 percent in just two months. On Monday, news of a slowdown in China’s economy and a cut in Chinese interest rates pushed prices down further, to less than $90 a barrel for the US benchmark.
Gasoline prices have fallen every day for the past nine weeks, to an average of less than $4 nationally, and jet fuel and diesel prices have also declined. That should eventually translate to lower prices for things as diverse as food and plane tickets.
But it would be premature to celebrate. Energy prices can rise just as easily as they can fall, unexpectedly and suddenly.
China, where the Covid-19 lockdown remains widespread, will eventually reopen its cities to more trade and traffic, boosting demand. The withdrawal of oil from the US Strategic Petroleum Reserve will end in November and will need to be replenished. And a single unexpected event — say, a hurricane that flooded the Houston shipping channel and put several Gulf of Mexico refineries out of business for weeks or even months — could send fuel prices soaring.
Falling Oil Prices Banner Chart With Down Red Vector Image
That kind of disaster could send ripples through the US and even the global economy, as energy prices are fundamental to the prices of everything that is transported and manufactured, whether it’s grain or building materials.
“Oil prices always have the capacity to surprise,” said Daniel Yergin, an energy historian and author of “The New Map: Energy, Climate and the Clash of Nations.”
Prices could fall further if Iran agrees to a new draft nuclear deal after backing down on its demand that the Islamic Revolutionary Guard Corps be removed from the US terror list, opening a potential windfall of at least one million more barrels a day for Iranian oil exports. oil. .
Moreover, the prospect of continued interest rate hikes has many investors and economists predicting a recession — and a drop in demand — even as unemployment remains low and profits remain resilient.
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“I think the price of oil could go down,” said Sarah Emerson, president of ESAI Energy, an analyst firm. “We have several factors coming together at the same time: we have China reducing crude oil imports in the third quarter, we have the end of the summer gasoline season, we have concerns about an economic slowdown and frankly, a lot of supply.” .”
But she quickly added, “That doesn’t mean prices won’t bounce back,” noting the impending end of the pullback in
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