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Traverse City Mi 49686
Garfield Auto Service Center
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Traverse City Mi 49686
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The Price of Gas: More Than A Coronavirus Cause

April 21, 2020, 12:00 am

Roads a bit quiet around town? Traverse City isn’t alone. Across the country, gas prices, traffic, and accidents are down to historic lows. But it isn’t all the coronavirus. 

Experts expect to see the national average for gas prices to hover around $1.30 over the next few weeks. That’s a number we haven’t seen in decades. It’s true that a big portion of that price decrease has closely followed demand. Approximately 270 million Americans are in some kind of lockdown, non-essential businesses are closed, airline traffic has dropped; it all adds up to a dramatic fall in demand. 

It’s more than just people staying home, though. You may have seen US oil prices go negative at the end of April. That means the price per barrel was less than $0. How is that possible? Well, if supply doesn’t slow when demand does, you’ve got a surplus. The US has reached a point where producers and distributors simply don’t have a place to store crude oil. That has them paying people to store the oil for them, which means they’re losing money with every single barrel. 

The problem started before most states in the US shutdown, too. OPEC and Russia argued about production levels and competing in certain markets. In short, they started playing chicken, leaving production static even as demand dropped. That drove prices down, with each side hoping the other would blink first. OPEC could play the game for a long time, and so could Russia. Still, cooler heads prevailed, especially as the virus showed that it wasn’t going to go away anytime soon. 

Caught in the crossfire were thousands of US shale oil producers. Many experts believe that the severe drop in demand would have been enough to drive hundreds of firms out of business. The same goes for the OPEC+ showdown; in combination, we’re seeing US companies fold in droves. 

So how low is it? 2019 is a good reference point. Last year, national fuel prices were $2.60 per gallon. If the worst-case scenario of $1.30 comes to fruition by the end of April, we’ll see prices halved in the span of just three months. For consumers, it comes at a time where record levels of unemployment and economic uncertainty make any reduction in daily expense a godsend, though all of the governments involved are already rushing to prop up oil companies and stabilize prices. 

 

Posted by Garfield Auto at 12:00 am
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