Houston - Trying to influence the U.S. gasoline price is like firing an arrow from a bow while you’re standing on the bed of a rolling pickup truck.
President Joe Biden is about to find out just how hard that is.
23 November 2021
News came Monday afternoon that Biden is considering supporting an international, coordinated effort to release crude from strategic reserves, including the one in Texas, to ease U.S. inflation.
The topic of high gas prices is sure to come up at the Thanksgiving dinner table across the U.S. on Thursday, with people by the hundreds of thousands driving to family gatherings. Enthusiasm is high because most holiday reunions were skipped last year. The bill at the pump is also high.
Gasoline on the rise
The trip from Houston to New Orleans takes about six hours, covers about 350 miles and goes past the nation’s largest refineries. This year, presuming you start on an empty tank in a car or truck getting 25 miles a gallon, the round trip will cost more than $84 if you fill up in Houston.
Last year the same trip cost around $50.
Gasoline prices are an important component of the inflation index. The price in California this fall got as high as it's ever been, with San Francisco prices creeping this week ever closer to U.S. $5 a gallon.
We at General Index have been watching the shipping data closely to see if Asia refiners try to leverage these prices by selling into California. The cost of the fuel’s three-week journey - and the complexity of timing its arrival to happen at peak pricing - make the strategy of shipping across the Pacific Ocean a gut-wrenching gamble.
Former President Donald Trump benefited from the pandemic dip in prices back when California fuel was much cheaper, with Biden now facing the sting from something neither of them had or has a lot of control over.
Refiners have the most to say in this conversation. They judge how much fuel they want to send to market by studying the margins. For gasoline and diesel in 2021, those profits are pretty good. For jet fuel, not so much. Diesel is more than 10 cents above jet fuel right now in key U.S. markets. In normal times, that spread should be in the single digits.
The big question through the weekend will be how many folks are willing to fly. Like the 8-ball sometimes says, “Signs point to yes.” Foot travel in U.S. airports is roughly 90% where it was in 2019 ahead of the last pandemic-free Thanksgiving.
Looking to the future
Sentiment in the oil industry points to better numbers this holiday than for 2019 Turkey Day.
Federal oil data out next week will tell the tale for the airlines, with truckers and gasoline retailers also watching the refined products data, but not as fervently. I, for one, will be watching how much jet fuel was shipped to the market. Planes have needed extra barrels with travel from Europe to New York, Atlanta, D.C., and the other major U.S. airports picking up.
The pessimists out there will say the holiday coziness will bring a rise in Covid infections and destruction of fuel demand. The optimists will say many of the people exposed to the virus this week are now not only doubly vaccinated, but also boosted with a third shot. Sounds like a good argument for the adults’ table.
Biden might get a fight too. Releasing barrels from the U.S. Strategic Petroleum Reserve (SPR) is a one-time solution. What if the California gasoline prices return near $5 a gallon ahead of the 2024 presidential election and the SPR already has been tapped?
On second thought, maybe don’t bring that part up at dinner on Thursday.
And safe travels to all.
Jeffrey Bair, U.S. Refined Products Pricing Director
+1 (713) 301 9874
jbair@general-index.com
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