What’s happening with fuel prices in America? Why Are Gas Prices Skyrocketing? These are the questions that arise among Americans who must fill up their tanks every morning to get to work. In some places, the cost of filling up their car has risen by 50%, according to the latest data released by the Bureau of Labor Statistics.
El American talked to Josh Spencer, a trader for one of the main oil companies in the country (which name will be omitted to avoid his opinions getting confused with those of his company) to explain a bit about why gasoline is so expensive and what the future of the oil markets looks like.
The Bureau of Labor Statistics showed that fuel prices have increased by as much as 50% this year. Why is gasoline so expensive?
If we go back to 2020 when things first started getting shut down, hardly anybody was traveling which mean there wasn’t much demand for jet fuel, people weren’t driving, so there wasn’t much demand for gasoline. All of these filters back for overall demand for oil.
You had an incredible amount of demand destruction that occurred. You had rigs that were being taken offline, a production that was decreased because you’re not going to produce if there’s not a market for it.
As lockdowns have ended, countries have been reopening, businesses are reopening, people are starting to travel again, they are starting to take vacations, well, all of a sudden all of that demand is back, but the supply that was there before COVID-19 hit has not completely returned.
Whenever you have a demand that outstrips supply, well, you have price increases. It’s not seen just in gas prices, you can see it even with our supply chain disruptions, people are having to wait for months sometimes to get products that they order.
What will the oil market be like in the coming years?
It’s going to be a fascinating market to see in the upcoming year and years because what you’re essentially seeing is the developed world, the United States, Western Europe. Australia, Japan, everyone is working on decarbonization. They’re wanting to move away from it. fossil fuels, away from oil.
Big countries, like Russia, China, India or Brazil, are not going to be moving away [from oil] near as much. Those countries a lot of times are going to be among of the fastest growing.
This plays out as far as whether the demand that increases from the developing countries outstrips the demand reductions that are starting to occur in some of the developed countries.
Two things are currently happening in the country: one is the zero Covid-19 policy, which has affected mobility and supply chains. The second is the policy to cut emissions and show blue skies in Beijing for the Winter Olympics. Is China reducing its demand for fossil fuels?
China is really kind of an enigma. It’s really hard to say because in China, obviously, they have prioritized a very fast-growing economy and that’s been part of the legitimacy of the government. But we’ve also seen their extreme control over anything else, including economic growth.
I don’t think that they have the capacity right now to commit to a really sizable replacement to a lot of their fossil fuels and their coal production. They might do it for a short period of time in order to look good to outside media. But I don’t think it’s something that they’re truly committed to as an actual principle.
Are you worried about a slow pace of oil demand during the next months with the expansion of Omicron variant or the market has already absorbed that cost?
I think the markets already absorbed it. Obviously, we’re not finished with the pandemic. It’s obviously still there. But I think we’re finished with governments going and taking the drastic kinds of measures that they did in the past that the public simply doesn’t have the appetite for it anymore.
Do you expect the demand of oil in America to slow down in the next year or do you guys expect the demand in America to grow?
I think it is going too slow. I don’t think, at least in developed countries like the U.S., we’re ever going to ever see the kind of oil markets and kind of demand that we saw in the past, simply because, again, everyone is moving toward this decarbonization and the shift to electric vehicles.
Now that being said, this is another point that needs to be mentioned as people constantly talk, well, we’re moving to electric vehicles. Well, it’s not just that easy that everyone just goes and buys electric vehicles because you need to have the infrastructure for that as well.
Maybe you can use an electric vehicle as your daily car for your daily commute. But if you don’t have charging stations set up along highway, well, you can’t use them to travel.
Another thing that needs to be mentioned is that electricity has to be produced somehow. So if everyone transitions to an electric vehicle, but the electricity itself is still being produced by fossil fuels. Well, then you haven’t really gone and changed anything.
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