While gas prices at the pump are leading to a figurative wailing and gnashing of teeth, there could be some relief on the way.
Call it a “Tale of Two Different Prices.” Early last week, crude-oil prices skyrocketed to $123 per barrel, only to plummet to $109 by the end of the week. As of mid-afternoon Monday, they had dropped to about $102 a barrel.
“We saw big swings in fuel prices last weekend, and it looks like that’s going to continue this week; based on the current price of oil, we could start seeing gas prices move lower,” said Mark Jenkins at AAA South in Tampa. Oil prices tumbled on Tuesday to their lowest level in two weeks, at $98 a barrel.
“Oil prices are down at a level that translates to about a 20-40 cent drop at the pump,” Jenkins said. “So, unless oil prices tick back up, then we could see some pretty steady relief in gas here over the course of the next few weeks.”
Oil prices dropped during the COVID-19 pandemic, leading some oil fields to be closed because the cost of extraction didn’t meet the break-even point. The price rebounded to more than $80 a barrel in October. The prediction was $105 per barrel before Russia invaded Ukraine.
“Then when Russia hits Ukraine, and especially after we shut down the buying of oil from Russia, then we’re looking at about 88 to 90 million barrels a day being produced worldwide,” said Snorri Gislason, a founder of Global Trading — a commodity and financial firm in Pensacola.
“We’re at 14 [million], let’s say; Saudi Arabia 12, Russia at 11 and a half. You cut 11 and a half million barrels out of 88 to 90, then that’s a significant supply shock,” he added.
According to a paper by Tufts University, about 8% of total imports to the U.S. come from Russia. An insignificant amount, according to Gislason, who says it has little, if any, effect on American oil supplies.
“The problem is, we trade oil on the world market; it doesn’t make any difference whether it comes from Norway, Saudi Arabia, or Texas — it’s a world market,” said Gislason. “For us, to shut down imports from Russia, doesn’t make that big of a difference in the market, except where it pushes up the world price of oil.”
There is no gas shortage, but Gislason says the domestic oil producers are making more money with higher prices for crude on the world market. Meantime, the release of 60 million barrels of oil worldwide — half by the U.S. — will have an immediate impact, but not a lasting one.
“This is around the world, so that will affect supply; at the same time, we’re looking at 11 million barrels a day coming out of Russia not coming to market — that has an impact,” said Gislason. “So obviously, everything makes a difference. Is it going to be the solution to the problem? Probably not. There’s no solution until this war is over.”
Many remember the oil and gas shortages of the early and late 1970s, and compare that with the current situation. Are there common threads? Gislason says yes ... and no.
“That was a strategic decision made by OPEC; they basically looked at us and our demand for oil, meaning that they can raise the price, so that was entirely voluntary,” he said. “One could say that it was voluntary that we shut down the production of Russia, but we don’t really have any choice. What they are doing is a totally unprovoked attack on a sovereign nation.”
But, don’t cry for Russian oil producers — that’s a rhetorical statement. Gislason says oil normally coming to the States and other nations is being shifted to other customers.
“They will be selling the oil to China and Iran; that’s one of the reasons why they demanded that in the nuclear talks between the rest of the world and Iran, that trade between Russia and Iran would not be stopped,” Gislason said. “That has not been approved, of course.”
Meanwhile, there are numerous reports that the Russian markets are crumbling, as is the ruble. That nation’s economy is also in shambles, says Gislason.
“To put things into perspective, Russia is about 1.8 times the size of the U.S. landmass, down in the contiguous states,” he said. “Our economy is $21 trillion, theirs is $1.5 trillion prior to invading. To put that further in perspective, the [Gross Domestic Product] of New York State alone is $1.8 trillion.”
All the jockeying for position on the world oil market eventually finds its way to the gas pump. With prices north of $4 a gallon, Mark Jenkins at AAA South says there are ways to stretch that tankful and your money.
“There are a few reward programs out there; there are credit card offers out there that offer cash-back opportunities for you when you fill up,” Jenkins said. “Whenever you go to the gas pumps, take a very close look at the price tag on the pump. There are some gas stations that actually will charge you more per gallon if you pay for a credit card vs. cash.”
And before hitting the road, make sure your vehicle is properly maintained, such as tires and engine. Also, slow down and avoid aggressive driving — both diminish fuel economy.