The price of a gallon of unleaded gasoline rose to an average $2.40 a gallon in Florida and the U.S. on Monday — its highest level in 11 months, according to travel club AAA.
And yet the world remains in the grip of a deadly pandemic. Tourism and entertainment venues remain either closed or operating well below capacity. Unemployment in the U.S. remained high at 6.7% last month.
Gas prices are supposed to remain low when demand is low. Remember the rapid price plunge to $1.75 or lower as demand hit the skids while we stayed home to flatten the curve last spring?
So what gives? Experts say optimism is fueling the increase. Traders have been driving up prices of crude oil futures — which are prices they wager the commodity will be worth over the next weeks and months — because they believe we’ll be getting back to normal life soon.
“The biggest contributor to rising oil prices is the hope in the market that the COVID vaccine will help global fuel demand recover,” AAA spokesman Mark Jenkins said be email.
Meanwhile, oil producing nations including Saudi Arabia are keeping prices high by carefully managing output and preventing a market glut.
So as counterproductive as it might seem for our own wallets, consumers should root for gas prices to keep rising because that will mean we’re emerging from the crisis, says Patrick De Haan, head of petroleum analysis at the price comparison website Gasbuddy.com.
“Sure, I’d rather pay a little more and have this COVID thing behind us,” he said.
Under the best-case scenario for the pandemic, gas prices could return to the $3 level by summer, as hard-hit states reopen and Americans unleash pent-up desires to get out to restaurants, tourism attractions, sports events, beaches and other recreation spots, De Haan said.
Particularly in northern states that were hard hit by a resurgence in cases this winter, “There’s only so much staying in the house that you can tolerate.” De Haan said.
Oil prices started increasing back in mid-November, just as pharmaceutical companies announced plans to begin distributing the COVID-19 vaccine. Since mid-November, oil prices steadily increased from $35 a barrel to $53 in mid-January. Over that same period, gasoline prices in Florida rose from $1.99 on Nov. 16 to the current $2.40.
Gasoline demand still has some catching up to do compared to the pre-pandemic days when cruise ships were operating at capacity, college students were booking their spring break trips and Miami was planning to host its first Super Bowl in a decade.
Sales data collected by Gasbuddy.com shows that demand is down 11.8% compared to a year ago.
Jet fuel demand, a reflection of how much we are flying for business and pleasure, is down 29.9%. Demand for diesel fuel, a measure of manufacturing activity and heating oil use, is down 12.9%. This year’s mild winter up north is likely reducing consumption of heating oil, De Haan said.
As the health community focuses on fixing errors that have slowed availability of the vaccine, gas and crude oil prices will likely level off for the next several weeks, De Haan said.
But assuming the vaccine rollout picks up momentum and the number of new cases steadily decrease, March should trigger another round of price hikes, he said.