Why Oil Price Is Rising? Watching your fuel gauge turn red these days will surely bring you a different kind of anxiety that you would have never felt two years ago.
According to latest reports, prices of a gallon of gasoline recently hit an all-time high of $5 or more, a 50% increase from the oil price one year ago. California drivers are more pressed with the concern with the average local price of fuel at $6.4 a gallon. Add more problems on inflation and you certainly have a recipe for an economic situation that will not be beneficial for anyone.
In 2020, during the Covid-19 lockdowns, prices of gasoline went down. Will low demand brought about by lesser mobility due to movement restrictions, prices declined. But the first quarter of 2022 gave a different situation on the prices of gasoline. Something that most people are not ready to deal with.
Insufficient Supply for Increased Demand
In 2019 and 2020, the Coronavirus was rummaging through the whole planet. In order to help the health sector keep up with the daily infections, governments have to impose movement restrictions on its citizens. This limited mobility made a big change to the dynamics of oil consumption and supply.
Two years later, as the economy slowly gained its pre-pandemic traction, demand for gasoline also increased. The last quarter of 2021 recorded the average daily consumption to be the same during the pre-pandemic level. Seems like people are already starting to go out and travel a lot.
With the increased demand for gasoline steadily increasing, suppliers are not quick to adapt. Traders have not carefully anticipated the sudden surge for fuel demand and they are working round the clock to keep up. This resulted in further increase in price in order to control the demand.
Slow Response of the U.S Oil Production Industry
In 2014, the U.S operated a total of 1,609 rigs. In 2021, it was at an astounding all-time-low of only 295. Since 2015, big oil companies are showing little interest in further exploring new oil supplies. There are a lot of reasons for this.
One is the increasing demand for renewable sources of energy. More people are considering exploring the possibility of using a hybrid or a fully electric vehicle. In the U.S alone, sales for electric cars are increasing each quarter with no signs of decline.
Unstable market for oil brought about by changes in the economy as a whole also affects decision making of large oil companies. There is uncertainty to the demand level and prices are very unpredictable. Investing in search for new oil wells is not a very good business decision for them at the moment. However, oil rigs currently in operation are already at 520. This is a 76% increase from the last seven years.