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Price war, COVID-19 could take inflation-adjusted prices to lowest in history
Gas prices are plunging across the U.S, across Wisconsin, and in the Northwoods, and they are expected to keep falling, with one analyst saying the U.S. could experience the lowest gas prices in history, after adjusted for inflation.
The average price of gas per gallon in the U.S. on Friday, March 20, was $2.12, according to Patrick De Haan, head of petroleum analysis at GasBuddy. That’s down nearly 35 cents from a month ago with 20 states averaging under $2 per gallon, De Haan tweeted Friday.
In Wisconsin on Friday, GasBuddy.com put the average for Wisconsin at $1.87 per gallon, with one location in New Berlin reporting a price of $1.43.
But all those prices are fast-changing and for two reasons: One, with mass furloughs, layoffs, and more people working from home due to COVID-19, gas demand has imploded; second, Russia and Saudi Arabia have been engaged in an intense oil price war after a mutual agreement to manage oil production collapsed.
On Friday, Phil Flynn, senior market analyst at the Price Futures Group, said he was hearing of targets of $1.50 to $1.60 per gallon national average, he told FOX Business’s Maria Bartiromo.
Meanwhile, on Thursday, March 19, President Donald Trump directed the Department of Energy (DOE) to purchase 77 million barrels of American-made crude oil to fill the Strategic Petroleum Reserve (SPR) to its maximum capacity. The DOE made an initial solicitation for the purchase of 30 million barrels.
The price tag would be about $3 billion, but the purchase needs congressional approval.
“DOE is moving quickly to support U.S. oil producers facing potentially catastrophic losses from the impacts of COVID-19 and the intentional disruption to world oil markets by foreign actors,” U.S. Energy secretary Dan Brouillette said.
But, while the purchase makes sense from an energy security viewpoint, many say it won’t do much to raise the price of oil, especially because Saudi Arabia could expand production by as much as 3 million barrels per day next month.
The COVID-19 paradox
While lower oil prices aren’t necessarily a good thing for the U.S. economy — at best a wash in normal times, many analysts say — there’s no question that lower gas prices do benefit American drivers and travelers.
According to De Haan, gas is 43 cents per gallon lower than this time last year. Over the next 24 hours, he stated on Twitter Friday, motorists will be keeping $161 million in their wallets versus one year ago.
But the lower prices — in part sparked by an international price war — come at a time when people are traveling less, either because they are forced to because of emergency orders, job shutdowns, and retail closures, or they simply want to avoid exposure in highly populated areas.
So people who could use the lower prices in a time of economic uncertainty and pressure can’t take full advantage of those lower prices. That drives demand even lower when lower prices usually help drive demand higher.
The price war between Russia and Saudi Arabia is not entirely disconnected from the COVID-19 pandemic. In fact, it started after the Organization of the Petroleum Exporting Countries (OPEC) asked Russia to reduce oil production by up to 1.5 million barrels a day because of declining international demand brought about by the pandemic.
Russia balked, however, and that ruptured a long-term agreement to coordinate oil output in response to a surge in U.S. oil production spurred by shale drilling. Saudi Arabia retaliated by pumping 2 million barrels per day into an already oversupplied market, and the price war was on.
Richard Moore is the author of the forthcoming “Storyfinding: From the Journey to the Story” and can be reached at richardmoorebooks.com.