As of press time, the national average price of gasoline is $4.52 a gallon, up 50.2% from $3.01 a year ago, according to the AAA, when the pandemic lockdowns were in full force, stifling fuel consumption.
Diesel’s national average is $5.57, up 80% from $3.08 this time last year.
And several industry analysts believe gas prices could reach $9.00 a gallon in some states by summer. California, the most expensive market, is already at $6.87.
With fuel being one of your biggest expenses as an expediter, higher prices at the pump mean lower profit in your pocket.
So, what’s driving the recent surge in fuel prices? Here are three factors to watch.
1. Post-pandemic recovery.
Today’s gas prices are higher than they would normally be, so it can seem like a panic. However, this is because the global economic crisis has left us without competition, so they can charge these prices. The panic felt by drivers is likely amplified by recent comparisons to the historically low petrol prices of last year.
As oil prices fell to an all-time low in April, many people had the option to work remotely and not spend as much on fuel. This helped workers avoid high gas prices and go about their days more efficiently.
For the past year, we had an oversupply of fuel that suppressed prices and usage. But recently, as COVID restrictions have been lifted in some places, demand has increased which should cause prices to start rising
2. Severe weather.
Due to a severe winter storm in February, Texas oil refineries were temporarily shutdown. This reduced the fuel supply, pushing up prices. Normally too much demand and less supply also results in increased prices.
As the hurricane season gets closer, watch for any potential impacts on fuel prices. U.S. refineries in the Gulf may have to close because of damage from hurricanes or other natural disasters, which could drive up gas prices
3. Global events.
OPEC and Russia surprised many analysts this month by cutting production from 9.9 million barrels of oil to 9.1 million barrels. OPEC and its partners are pumping less oil every day even though prices have increased. They’re trying to save their costumers from excessive costs.
The article quotes René Ortiz, a former secretary-general of OPEC who is now Ecuador’s energy minister “The discipline to support higher prices is needed for the recovery of their economies.”
In other words, OPEC member countries need to sustain prices for oil at a higher level because there was a significant drop in revenue from this time last year and they need the money to balance their budgets & service their debts.
The recent incident at the Suez Canal stands as a glaring example of how incidents happen that can cause losses. The ship, which banged into the side of the canal, caused disruptions and forced big shippers to change direction.
Reports say that the recent blockage caused 10% of global crude oil supply to be halted.
Ben Winck, Business Insider Correspondent, has said that the “recovery from the coronavirus pandemic was almost certain to be enough to lift oil prices anyway, but the sudden shock of this event is liable to make them climb higher”.A crash in global trade pushed prices of oil to historically low levels – only recovering weeks later.
The Bottom Line
In the meantime, fuel prices will continue to rise as demand keeps up. There are factors that could help keep prices stable, like an increase in fuel supply. It is unclear what OPEC or the U.S. will do about the significant drop in oil production. In addition, it remains to be seen if we will surpass pre-pandemic production levels