US fuel prices hit a seven-year high Wednesday, as oil supplies remain low even as demand is now back to 2019 levels. As a result, Americans are now paying the highest prices for fuel since 2014.
Fuel Prices Post Seven-Year High
According to the American Automobile Association, the national average for a gallon of gas went up to $3.32 Wednesday. This represents the highest average since 2014.
In some areas like California, fuel prices are even higher. California’s Mono county posted prices of more than $5 per gallon. On a statewide level, the Golden state’s average cost is $4.42.
Compared to fuel prices last year, Americans are shelling around a dollar more per gallon. West Texas Intermediate crude futures, the US oil benchmark, hit $77.60 per barrel. In 2020, WTI crude futures traded at $40 per barrel.
Rising Cost Due To High Demand and Low Supplies
Fuel prices are making a comeback as demand rises to pre-pandemic levels. In 2020, demand for fuel dropped significantly as businesses shut down.
Even as demand eventually recovered, the oil supply remained tight. It didn’t help that the recent Hurricane Ida put a seriously hampered oil production in the Gulf of Mexico.
As demand continues to rise, major oil consumers such as the US and India called on OPEC+ to increase production. However, instead of acceding to the request, the coalition of oil producers stayed on schedule.
Their previous commitment was increasing their November output by 400,000 barrels a day. OPEC+ decided to continue with its commitment instead of drawing up a new plan.
OPEC+ Won’t Raise Production Yet On Fears of Weaker Demand
Sources believe that OPEC+’s decision stems from concerns that demand can still fall during the pandemic. Now that member countries are enjoying increased revenue, they do not want to commit to higher supplies only to take it back again when economies shut down.
In fact, OPEC+ introduced record production cuts of roughly 10 million barrels per day in April last year. This is equivalent to 10% of global output.
Meanwhile, the administration of President Joe Biden decided to shelve plans for new fossil fuel drilling leases. They also moved to cut down domestic oil production.
As a result, gas prices steadily climbed this year. Consequently, Americans are now paying the highest fuel prices in seven years.
Granholm Considering Tapping Reserve
Meanwhile, US Energy Secretary Jennifer Granholm said on Wednesday that the White House is considering tapping the country’s reserves to temper fuel prices.
“It’s a tool that’s under consideration,” Granholm said at an FT energy transition summit. The reserves she referred to are part of the Strategic Petroleum Reserve (SPR).
Traditionally, US presidents occasionally authorized the use of SPR to augment local stocks. The last big release came during the administration of President Barack Obama, who ordered the sales of 31 million barrels in 2011.
The SPR currently holds around 620 million barrels of crude. According to the Energy Department, this is the country’s lowest supply in 18 years.
In addition, Granholm also didn’t rule out crude oil exports. Obama also lifted exports in 2015. “That’s a tool that we have not used, but it is a tool as well,” Granholm said.
Watch the Yahoo Finance video reporting on Gas pump sticker shock: US gas prices still have some way to go:
What can you say about the rising fuel prices across America? Do you foresee fuel prices going lower within the year? In addition, will higher fuel prices affect your plans for travel and vehicle purchases?
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