Gas-strapped commuters are feeling it in their pocketbooks while filling their tanks
The average cost of a gallon of gas in the U.S. is nearly $3 these days, an almost $1 increase from this time last year.
While drivers collectively curse the rising rates, hedge fund managers have cashed in by boosting their positions in petroleum, indicating confidence that prices will continue to soar as the year goes on.
The cost increase can be attributed to a number of reasons, with the price of crude oil – a globally traded commodity – near the top of the list.
Production of crude oil – which is sitting at around $60 a gallon, nearly double what it was a year ago – was curtailed before the pandemic, and, with COVID-restrictions being scaled back and travelers back on the move, demand has ramped up.
“The higher price in 2021 results from our forecasts of higher crude oil prices this summer and greater gasoline demand as the effects of the COVID-19 pandemic continue to subside and travel increases,” Energy Information Administration Acting Administrator Steve Nalley told Bloomberg. “We forecast 15% more highway travel this summer as a result of rising employment, easing regional restrictions designed to slow the pandemic, and increasing overall economic activity as vaccination rates increase.”
Fund managers, sensing the change in demand, have purchased the equivalent of 63 million barrels in six different petroleum options contracts and futures in the last three weeks.
The exchanges that have seen the most activity are NYMEX and ICE WTI, which have seen an increase of 15 million barrels, and European gas oil (11 million barrels).
In addition to crude oil raising in value, gas price inflation can also be attributed to disruptions in the refining process, with a severe cold season in the Gulf Coast reducing production by 10% this year.
Summer blends of gasoline are also more expensive than winter blends, with summer crude blends designed to produce less smog in the warmer weather.
Potential disruptors to the industry are the continued curtailing of international travel – although restrictions should be scaled back as we move into the second half of the year – and the dire COVID-situation in India, the world’s third-largest oil importer.
“Preliminary data for Indian fuel demand is already available, which shows that gasoline demand fell 6.3% MoM to total 2.14mt, which is the lowest since August,” said analysts at ING, in a note reported by Investing.com. “Given that it still appears as though Covid-19 in India have not peaked, we expect to see further downside to fuel demand over May.”
For now, hedge funds will continue to test the market, as a post-pandemic global manufacturing boom appears to be just over the horizon.