This week is spring break for many in Texas, and those hitting the road for a trip may notice gas prices have been rising again.
According to AAA, the national average price per gallon of regular grade gasoline is now $3.39 – 25 cents higher than a month ago. Here in Texas, a gallon is $2.93 on average. Where will it go from here?
It’s something Matt Smith, energy analyst for Kpler, is keeping an eye on. He spoke with the Texas Standard about the seasonal and geopolitical factors influencing gas prices right now.
This transcript has been edited lightly for clarity:
Texas Standard: Here in Texas, spring break travelers are going to feel higher prices at the pump. Is this just a seasonal trend, or is there something larger going on with oil prices right now – or maybe both?
Matt Smith: It’s both – you’re right. So prices typically rise at this time of year as we switch to summer blend gasoline. But also oil prices have been gradually rising this year as well. We’ve kind of had this stealthy move from, you know, low 70s at the beginning of the year to closer to $80 now.
In terms of where we go from here. Oil prices continue to find support from geopolitical concerns. The end of spring maintenance in the U.S. is also in sight, which means high oil demand from these refineries going forward. So while we shouldn’t expect prices at the pump to skyrocket, we shouldn’t expect any precipitous drop either – just a gradual rise from here on out.
Could you explain a bit about what the difference is between summer blend and winter blend, and why one is more expensive than the other?
Yeah, it’s just because of the higher temperatures in the summer, you have to add additives to the gasoline so that it doesn’t essentially evaporate. And to do that, those additives cost more than just the straight winter blend. So it’s just simply that. So you tend just to see a step up in the prices at the pump as this gasoline is essentially more expensive.
How much of this is local stations trying to take advantage of the fact that, well, there are just more cars out there driving around during spring break?
It’s easy to be skeptical about that, but there is regulations in place so that there isn’t price gouging. So for the most part, there is the influence of the prices more than anything.
You know, these gas stations aren’t making a lot of money on the margin here on the gasoline. They actually make more money when you go into the stores and buy coffees and buy snacks. And so they’re not making it on the actual commodity, really.
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Well, now let’s get on to what’s happening in Europe here. I’ve been reading that they’re struggling to source supplies – and not just because of Russian sanctions, but also because of what we’ve been hearing going on in the Red Sea, that sort of thing. Is that true?
Yeah. They continue to take these body blows, you know. So they’ve struggled to replace Russian oil and products since sanctions were applied a couple of years ago. The Ukraine-Russia conflict has gone on for two years now, and that situation has been exacerbated recently by Red Sea issues, because Europe gets a lot of its crude oil and diesel from the Middle East and India, which passes through the Red Sea and through the Suez Canal.
And so, you know, they’ve had to source oil and products from elsewhere or wait for those cargoes to go all the way around the Cape of Good Hope around Africa there to get to Europe instead.
As I recall, the, calculus for supply and demand is when you have demand increasing and you have supplies, not so much. That’s a recipe for higher prices. And I would guess that that has ripple effects on our shores, too.
Yes, it does. That said, you know, we haven’t really seen supply disrupted on the whole; it’s just taking longer to get to these places because you’re having rerouting in that. But for the U.S., the U.S. is definitely feeling the price impact of these geopolitical issues because oil prices move on global events, not necessarily U.S.-specific ones.
But from a flows perspective, the U.S. is in a much better situation. You know, we don’t source that much crude from the Middle East anymore. We’re refining 15.5 million barrels a day of our own products here, right now. And so we’re not as in a bad situation as Europe is. And at the same time, we’re exporting more crude to them. We’re exporting more diesel as well, to meet their needs. So we’re in a much better situation.
But for how much longer? I mean, I think it was like a weekend before last OPEC said that they’re going to extend production cuts. Is that going to hurt us?
Yes. So, they’ve got to be really happy where prices are right now, because we’re going through refinery maintenance, which is typically a weak demand period of the year. And yet, you know, we’re talking about oil prices just below $80 here in the U.S.
And so they’re extending those cuts through Q2 and probably longer as well. And so that’s likely to add further support to prices here, even with all the geopolitical tensions as well simmering away in the background. So not great, you know.
