Crude oil prices have hit their highest levels in nearly four years and that means motorists are paying more for gasoline just as the upcoming Memorial Day weekend moves the summer driving season into high gear, pushing the price at some stations in Texas close to the $3 a gallon mark.
Brent crude — the international benchmark for oil prices — cracked the $80-a-barrel mark during the trading day Thursday for the first time since November 2014 before finishing at $79.30.
West Texas Intermediate (WTI) — the benchmark price for most crude produced in the U.S. — finished the trading day at $71.49 a barrel. WTI traded at $72.30 on Nov. 28, 2014.
“It’s kind of a sign of what’s to come, which is more gas price increases,” said Patrick DeHaan, head of petroleum analysis at GasBuddy, a tech company that helps motorists find the cheapest gasoline in a given area. “That’s not exactly what people want to hear ahead of the Memorial Day weekend but it’s like all of our worst fears are coming true.”
At the start of the week, the average price of regular gasoline in the U.S. was $2.873, an increase of nearly 18 cents a gallon in five weeks, according to the U.S. Energy Information Administration (EIA).
The average price in Texas was $2.718 a gallon, 21 cents higher than last month's average. In Lubbock, the average price per gallons was just shy of $2.69 as of Friday, according to GasBuddy.
Gasoline prices move in tandem with oil prices and crude has been on a steady upward trajectory, especially in recent months.
Increasing geopolitical tensions, tightening of production by the Organization of Petroleum Exporting Countries (OPEC) and dwindling stocks of crude have all pushed up prices.
In recent years, oil inventories were flush but that’s not the case now.
“The glut is over my friend,” said Dan Steffens, president of the Energy Prospectus Group, based in Houston. “The world oil supply is below the five-year average today and demand exceeds supply by over a million barrels a day.”
Crude oil inventories in the U.S. dropped by 1.4 million barrels in the weekly report put out by the EIA on Wednesday.
Shale oil companies in places such as the Permian Basin in Texas and southeastern New Mexico have been producing record amounts of crude but Steffens said the U.S. uses about 17 million barrels a day while domestic production comes to about 10.5 million barrels a day.
“We still import vast amounts of crude oil every day,” Steffens said. “We’re dependent on a global market.”
President Donald Trump announced last week he would withdraw the U.S. from the Iran nuclear deal and bring back sanctions on the oil-producing country. Steffens said the U.S. does not buy Iranian crude but many countries in Europe do through OPEC, which partly explains why the international Brent price is higher than the domestic WTI price.
Venezuela is another flashpoint. Though a member of OPEC and owner of the largest amount of proven oil reserves in the world, Venezuela’s economy is in shambles. An economist at Johns Hopkins estimates the country’s annual inflation rate at 15,657 percent.
Oil prices may be surging but Venezuela has not been able to take advantage of it because the country’s state-run oil company is so badly mismanaged.
“The crude coming out of Venezuela right now is crap,” Steffens said. “The refiners won’t take it. (The Venezuelans are) not cleaning it up before they send it over.”
Global oil conditions are a far cry from little more than two years ago when oil prices crashed below $30 a barrel. There’s now talk that $100-a-barrel oil may return for the first time since June 2014.
Steffens thinks the price won’t get that high. He expects the price of Brent in the low 80s, with the average price of gasoline in the U.S. to reach about $3.50 a gallon by the end of the year.
“A little shortage causes a big impact on (gasoline) price,” he said.
DeHaan thinks the current price may be a bit overextended, leading to push-back from consumers.
“I think the sweet spot (for oil producers) is a little lower than $80 a barrel," DeHaan said. “All these headlines about the highest gas prices since 2014 I think will contribute to a little negative sentiment for the traveling public. It probably won’t curtail them but … people may be cutting back on discretionary spending.”
In the meantime, DeHaan advises drivers to shop around.
“The most simple mistake is putting yourself in a situation where, oh no, (my gas tank) is on E and I need gas and I can’t get home where there is a cheaper station,” DeHaan said.
Organizations such as GasBuddy and AAA offer apps showing drivers the stations offering the lowest prices.
A few cents a gallon may not seem like much but motorists who drive 15,000 miles a year in a vehicle getting 25 miles per gallon will end up buying 600 gallons in that time period.
“If you save 25 cents a gallon by not picking the expensive station, you’ll save 150 bucks,” DeHaan said.