Supply and demand have been mostly responsible for the increases in oil and gas prices since the heart of the pandemic. Global demand exceeds production by 2.8 million barrels a day. Demand has recovered in China and India and is on the upward spiral in the United States and Europe. Oil stockpiles that rose during the pandemic have decreased due to output cuts by OPEC+ (OPEC and its partners) and lower production in the United States during the pandemic. U.S. oil production was further curtailed by more than 10 percent, 1 million barrels per day, due to the freezing weather hitting oil producing states, particularly Texas. Adding to that, OPEC+ recently agreed to continue its production cuts through the end of April with minor exceptions. A March 7 attack on a Saudi oil port further increased Brent oil prices to over $70 a barrel. West Texas Intermediate oil prices had hit a low of minus $37.63 a barrel shortly last April before settling around $40 a barrel, but are now in the mid-$60 a barrel range.
U.S. Petroleum Demand
U.S. petroleum demand, as measured by total petroleum products supplied, was 19.4 million barrels per day in January 2021, according to the latest monthly statistical report by the Energy Information Administration (EIA), a 4 percent increase from December and a decrease of only 2.3 percent compared with January 2020—a notable recovery given the depths of the 2020 COVID-19 recession that began after that.
Consumer gasoline demand was 8.5 million barrels per day in January—basically steady from December. The majority of recent driving activity is due to necessity, as opposed to discretionary travel which has been reduced during COVID-19. The 8.5 million barrels per day in January 2021 was a decrease of 11.6 percent (1.1 million barrels per day) versus January 2020, but 34 percent higher than April 2020.
U.S. oil prices posted their highest finish since 2019 after the Organization of the Petroleum Exporting Countries and its allies said they will rollover current production cuts to the end of April. Russia and Kazakhstan were the only exceptions and were allowed to increase production by 130,000 and 20,000 barrels per day, respectively, due to “continued seasonal consumption patterns”. Saudi Arabia also extended its voluntary output cut of one million barrels per day, which was due to expire at the end of March, through the month of April. OPEC+ appears to be responding to the uncertainty around the demand outlook by taking a more cautious approach. Further, OPEC+ does not believe that U.S. oil production will be able to respond to the higher price environment any time soon. Forecasters are looking at $75 or $80 a barrel oil in the 2nd and 3rd quarters of this year.
Attack on Saudi Oil Port
Yemen’s Iran-aligned Houthi rebels said they attacked a major Saudi Arabian oil port on the Persian Gulf (Ras Tanura) with drones and missiles on March 7. Despite Saudi authorities indicating the strike caused no casualties or damage, oil prices increased after the market opened Sunday evening in New York following the attack. Brent crude added more than 2.5 percent, rising above $71 a barrel. Prices surged to their highest level since May 2019, due to rising demand as the global economy reopens from shutdowns caused by the coronavirus and due to supply curtailments in many producing countries.
Ras Tanura is the site of Saudi Aramco’s oldest and largest oil refinery and the world’s biggest offshore oil loading facility. The 550,000 barrel-a-day refinery supplies over a quarter of the kingdom’s fuel supply, and its port is capable of moving 6 million barrels per day. It is critical to world oil supplies.
The Houthis stepped up aerial attacks on Saudi Arabia following President Biden’s inauguration in January. President Biden pledged to end the six-year-old civil war in Yemen and recalibrate Washington’s relationship with Riyadh.
Saudi Arabia responded by dropping bombs on Yemen’s rebel-held capital San’a. The coalition blamed the Biden administration for the attacks by Iran-backed Houthi rebels after a decision to remove them from U.S. terror lists. The price of Brent crude was down to $68.76 a barrel, after hitting a high of $71.38 a barrel on Sunday. It was the first time the global benchmark has traded above $70 since January 2020.
Gasoline prices have been increasing at the pump for the past few weeks, reaching a national average of $2.77 a gallon as of Monday, March 8, which is 39 cents higher than the same time in 2020, according to AAA. Some forecasters are predicting a national average price of $3 a gallon as early as April. The more states reopen and the more people get vaccinated, the more demand for gasoline will likely increase. If higher demand levels occur during the summer driving season, even higher gasoline prices could result.
The Biden administration is getting what it wants—higher oil prices and higher gasoline prices that will result in Americans being forced to transition to electric vehicles and get to a net zero economy by 2050. It does not appear to matter to the Biden administration that Americans will suffer and that low income families will be affected the most. The Biden administration’s domestic and foreign policy will result in higher oil and gasoline prices, which was apparent from day one when President Biden signed executive orders to cancel the Keystone XL pipeline and to review oil and gas drilling on federal lands by placing a moratorium on leasing there.