American consumers should expect gasoline prices to keep surging as a result of various domestic and global factors, according to energy analysts who spoke with FOX Business.
Major petroleum refinery snags and policies disincentivizing more fossil fuel production or nationwide refinery capacity have contributed to the price uptick, the analysts said. In addition, the powerful Middle East oil cartel the Organization of the Petroleum Exporting Countries (OPEC) and Russia are expected to announce a massive production cut of up to 1-2 million barrels per day on Wednesday, Reuters reported.
“What OPEC might do very much could dictate where we go by the end of the year,” Patrick De Haan, head of petroleum analysis at GasBuddy, told FOX Business in an interview.
“I had expected at least a good potential that the national average could fall under $3 a gallon, but I think OPEC just threw a bucket of cold water on that by signaling its intentions to be well ahead of any economic slowdown,” he continued. “Global inventories for oil remain extremely tight and it’s very clear that OPEC is growing addicted to triple digit oil.”
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The nationwide average price of gasoline increased for the 14th consecutive day Tuesday, reaching $3.81 per gallon, according to an AAA database. Pump prices had declined for 99 straight days between June and mid-September after hitting an all-time high of $5.02 a gallon.
Both the WTI index, the U.S. benchmark, and the global Brent crude benchmark traded 3% higher Tuesday in anticipation of OPEC’s announcement Wednesday. The higher oil prices could signal more pain at the pump for consumers in the U.S. and abroad.
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“If they do something really specific where the Saudis and Kuwait and United Arab Emirates were going to shoulder the cuts, because other countries are having trouble being up to quota, then I think we march significantly higher for crude,” Tom Klaza, the global head of energy analysis at research firm Oil Price Information Service (OPIS), told FOX Business in an interview.
“I think we go higher for crude anyway in the next three or four months, but this is kind of what happens in the next three or four days,” he continued. “So, I would say the lowest expectation is that they announce a cut of a million barrels a day, but it’s across a membership that includes underperformance.”
At the same time, a series of routine and unexpected disruptions at U.S. refineries, which turn out petroleum products like gasoline and diesel fuel, has played a large role in gasoline price hikes. The closures have particularly impacted prices in California where the average pump price has skyrocketed to $6.41 a gallon, more than a dollar higher than a month ago.
“What’s really been driving prices up in the last couple of weeks has been more related to an exceptional amount of refinery snags,” De Haan told FOX Business. “But now that OPEC appears on the cusp of cutting oil production that could start setting prices a bit higher as well.”
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OPIS projects that about 3 million barrels a day of domestic refinery capacity, the equivalent of nearly 20% of total inputs, will be down at some point in October, Klaza said. “That’s a lot,” he added.
Overall, U.S. refiners are churning out about 90% of their total operable capacity, according to the most recent data from the Energy Information Administration. That figure is down from the roughly 95% utilization rate recorded in June.
AAA said Monday that consumers should “brace for rising pump prices” if demand remains high while refinery closures and maintenance forces supply lower. Domestic gasoline demand ticked up from 8.32 million barrels a day to 8.83 million barrels a day last week, EIA data showed.
De Haan also took aim at several government policies that he said have contributed to refinery snags and higher gasoline prices more broadly. He specifically criticized the Biden administration saying oil companies should increase refining capacity while it has openly advocated for a transition away from fossil fuels.
“The White House is basically picking a winner,” he continued. “It’s picking EVs and it’s picking a loser: fossil fuels. What oil company is going to invest billions of dollars in building a new refinery? In this climate, it would be foolish.”
“Talk about doublespeak. ‘We need to build more and we’re going to shut you down in 10 years.’ That confusion is not going to build confidence in oil companies to say, ‘hey, you know what, we’ll expand our refinery by 100-.’ No, nobody’s going to do that.”
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President Biden wrote to seven major oil companies in June, warning that he was prepared to take action if they didn’t boost refinery output. However, the administration was silent on whether companies should boost refinery capacity as gas prices decreased throughout the summer. Such refinery expansions are extremely costly and are increasingly risky in light of ever-more stringent environmental regulations.
Over the last two weeks, Biden has again directed his ire at the oil industry, blaming companies for the rising prices. The White House, though, took credit for price decreases in July, August and September.
In light of increasing energy prices, a coalition of business groups including the Chamber of Commerce, 204 local Chambers of Commerce representing 47 states and 14 national trade associations penned a letter to Biden on Tuesday, urging him to boost offshore and onshore energy production. The Biden administration has continued to push its federal ban on new oil and gas leasing, even while asking foreign producers to increase output.
The letter noted that small and large businesses alike are facing increased costs for goods, services and transportation stemming from higher energy costs.
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“With analysts predicting a return to high oil and natural gas prices this fall and winter, businesses are bracing for even more pressure,” Marty Durbin, the president of the Chamber of Commerce’s Global Energy Institute, said Tuesday.
“While we recognize that policies supporting increased production won’t solve our challenges overnight, it will send important market signals that could help unlock investment, helping avoid long term supply shortages and elevated prices.”
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