With crude oil prices at a 14-year low, gasoline prices have been creeping downward for months, delighting motorists at the pump.
That trend has reversed in recent days, with the price of a gallon of regular unleaded jumping roughly 15 cents. Will Speer, senior petroleum analyst with GasBuddy.com, said the sudden increase is partly due to a rally in the price of crude caused by a decrease in domestic oil production.
The U.S. rig count has fallen from more than 1,600 active rigs in November 2014 to 400 as of Feb. 26, he said.
“The oil rig count number is kind of a good indicator of how healthy the oil business is,” Speer said. “We’ve seen six consecutive weeks of declining production.”
Still, this country has a lot of oil on its hands. While it’s normal for gas prices to rise when refineries switch over to cleaner burning “summer blend” in March and April, very high inventories of domestic crude will keep a lid on gas prices, even during the peak of summer driving season, Speer said.
“We’ll see a little increase because now it’s a more expensive blend,” he said. “But because of healthy inventories that should cap how high it goes.”
The fact that refineries shut down for maintenance in the spring exacerbates the glut, because it creates less demand for oil, Speer said.
Taking a “wild guess” on the scenario a year from now, Speer predicted that rig counts would continue to fall, further affecting production.
“As (production) goes away, we may finally start to be able to work through our inventory glut in a meaningful way,” he said.
As oil prices go up, however, rig counts tend to increase too, creating more production in relation to demand, Speer said. The “shale revolution” that led the U.S. crude oil glut in the last few years means generally lower oil prices, he said.
Speer said he doesn’t think gas prices will go much higher than $2 this driving season, if indeed they reach that level. People will complain anyway, though drivers should bear in mind that an average gallon of regular unleaded peaked 56 cents higher last year, he said.
“It’s still a really good savings,” Speer said. “It’s a good time to do those long summer drives.”