OPIS Analyst Says $4 Gas Possible This Spring

Crude oil is high, and carbon cutting, low oil production and new blends are to blame, Kloza says.

January 12, 2022

$4 Gas Prices

ALEXANDRIA, Va.—Americans should expect to see record high gas prices nearing $4 a gallon this year, according to Tom Kloza in a CNN opinion piece. Kloza is global head of energy analysis for the Oil Price Information Service (OPIS).

“To be sure, the crude oil prices that provide much of the raw cost for gasoline trended higher for virtually all of 2021. In October, Brent crude, the global benchmark for oil, hit a high of $85.76 per barrel and the U.S. benchmark West Texas Intermediate reached $85.64 per barrel,” wrote Kloza.

“Wholesale gasoline usually trades some $10 to $20 per barrel higher than crude oil. That difference could soar to $40 to $50 per barrel or more this year if Omicron wanes and gasoline demand moves even higher.”

Kloza says that many have blamed President Biden for the higher energy prices, and although he did stop the permits for the Keystone XL pipeline, which would have moved more Canadian oil from Alberta to Nebraska, existing pipeline expansion projects have and will move more Canadian crude to the U.S. However, Biden’s regulations to decrease the U.S. carbon footprint could impact energy prices but not until the second half of 2022.

“Once we really start moving away from fossil fuels, it will be expensive and painful. To deny that expense is as disingenuous as denying climate change,” wrote Kloza.

Additionally, OPEC, notably Russia, only gradually increased oil production, and these countries kept millions of barrels off markets with well-crafted quotas.

“Meanwhile, in the United States, bankers have kept their investments in oil exploration companies on a tight leash, not wanting to create a third boom-and-bust cycle. As a result, less capital for U.S. crude has kept production well below record levels,” wrote Kloza.

Other factors that will cause record gas prices include new blends and fewer refineries. Each spring, the U.S. gasoline industry switches from a cold winter blend, which includes cheaper ingredients that can be used in colder months, to a warm weather blend that is less volatile but more expensive.

“This ‘rinse-and-replace’ cycle takes place against the backdrop of refinery maintenance and daily consumption of more than 300 million gallons,” wrote Kloza.

There is a strong seasonal trend of oil investors, speculators and traders buying gasoline reformulated gasoline blendstock for oxygenate blending (RBOB) futures in anticipation of a spring rally. A typical rally from the autumn bottom to the spring top is about 58%, and using that percentage would equate to RBOB futures' prices of between $2.75 to $3 per gallon as spring driving begins, and that's high enough to support $4 per gallon prices in many areas, according to Kloza.

“The increases in gasoline prices we saw this year were dramatic, yes, but gradual, and had very little impact on purchases. Consumers didn't spend nearly as much of their household budgets on gas as they did in years past,” Kloza wrote. “However, we could see consumers scaling back even further on gas purchases if crude prices hit $100 a barrel or more, which is completely plausible. Even if they hit $85 to $90 a barrel, it's likely we'll see $4 per gallon-plus prices this spring.”

NACS offers retailers an insider’s view at how fuel is produced, refined and ultimately sold at convenience stores across the United States in the NACS Fuels Resource Center. And we look at some of the issues that could affect an otherwise easy and convenient fill up.