Drivers have probably noticed in the last few months, or years, that their wallets are a little lighter than usual after each visit to the gas station. Fuel prices have risen sharply around the globe, and unfortunately, they don’t seem to be coming down any time soon. In fact, the bad news is that fuel prices will most likely continue to go up, but not for the reasons that are traditional culprits.
Crude oil barrel prices are predicted to hit the $100 mark this year for the first time since Summer 2014. At writing, the prices per barrel are hovering around the high $80 per barrel range.
But what is (still) causing the high barrel prices and subsequent fuel prices? There appear to be three newly emerged culprits.
One reason is continued supply issues. OPEC’s ‘spare’ production of oil continues to be far outpaced by global demands, with only an estimated 4 million barrels produced each day. In previous years this figure was closer to 11 million per day. The globe was warned about the flow-on effects of supply chain problems brought on by the pandemic and now we are seeing this, unfortunately, come to fruition.
A second reason is that global investment trends have shifted towards renewable energies dramatically in recent months, with fossil fuel companies bearing the brunt of this global financial shift. This means that less money is available to fuel producers for new drilling projects. They are quite literally seeing stagnation in oil production.
Geopolitical factors are also influencing the barrel price of oil. In previous months there has been great unrest in Kazakhstan (a major oil-producing nation), a Yemeni based terrorist attack on oil infrastructure in Abu Dhabi, a brief halt to production of oil through the Kirkuk-Ceyhan pipeline (flowing between Iraq and Turkey), and now a potentially brewing conflict between Ukraine and Russia.
The potential Russian invasion of Ukraine is tipped to be the last straw, by many experts, in sending oil barrel prices finally into the $100 range.
President Biden has many ongoing issues to tackle, both at home and abroad, but one that seems to be persistent for the current president is inflation and gas prices. Barring any sort of standing down from Russia in the coming days, the world will likely see continued high pricing.
An important factor to remember is that the US is no longer the world’s decision-maker when it comes to fuel pricing. The US’s decline in oil imports over time, and a shift towards Canada as a primary source of oil means that OPEC nations had a massive financial gap to fill. It is currently estimated that of the United States’ oil imports, 52% come from Canada while OPEC nations make up only 11%. Energy independence has had its ups and downs though.
A stop to investments in ‘bad’ drilling projects by banks has meant that oil companies are only tapping their best wells. And while the production of oil slowed early on in the pandemic, investor pressure forced companies to step things up. So while investors are seeing great returns, it’s largely due to the fuel prices consumers pay, as opposed to the production rate. Oil companies are keeping the Supply v Demand battle firmly tilted right.
Many industry experts also claim that President Biden’s rhetoric around the energy industry is scaring companies. Climate change concerns saw the president place limits on oil and gas drilling (especially on federal lands). While judges recently overruled the federal order, the cancellation of the Keystone pipeline from Canada closed off some future possibilities of lower fuel pricing.
The President has since gone back to OPEC to ask for an increase in production, and the country is waiting to see how that works out. Expect to see a meeting between President Biden and Saudi Crown Prince Mohammed bin Salman sometime soon if prices don’t taper off.
Returning back to the Russia/Ukraine issue though, many energy industry experts predict that The US and Europe will be further hamstrung if Russia chooses to invade. Russia takes care of Europe’s gas imports. And if energy prices continue the way they are around the world, Europe will be forced to submit to Russia’s will or face an energy catastrophe. The US will feel the flow-on effects of that also.
The coming weeks will be very telling about where fuel prices will be. Unfortunately, relief at the pumps for your fleet doesn’t seem to be coming any time soon.
Have questions about how to better manage your fuel needs in light of the ever-changing economic landscape? We can help! Reach out to our team today!
