RIVERSIDE (CNS) – Gas prices in the Inland Empire and elsewhere in California will continue to nosedive, possibly falling to about $2.50 per gallon next month, as the novel coronavirus emergency paralyzes demand for petroleum, an energy analyst said today.
“Who knows how far this may go because of COVID-19,” Oil Price Information Service Chief Analyst Denton Cinquegrana told City News Service. “Right now, there are stunningly low gasoline demand figures. I suspect they will go lower. Everything depends on when demand comes back.”
According to the Auto Club’s Price Gauge Report, the average price for a gallon of unleaded gas in the Riverside metropolitan area is $3 per gallon. A week ago, it was $3.17, a month ago it was $3.47, and a year ago, $3.57.
The price for a barrel of West Texas Intermediate Crude — the benchmark indicator for oil prices in the U.S. — ended the trading day at just over $20. Cinquegrana said WTI has not settled at that level since the winter of 2002, during the tech-driven recession and the aftermath of 9/11.
“California is one of those states where you could run into a situation where the taxes may end up being more than the actual price of the product at the pump,” he told CNS. “The gasoline moving downstream from the refinery to the consumer keeps going lower. The drop in spot prices is unprecedented. People hesitate to use that word, but it’s a fair description this time.”
Cinquegrana said that without the regulatory costs associated with California Air Resources Board requirements, pump prices would already be tumbling closer to the national average, which the Auto Club reported to be about $2 per gallon.
“Gas stations are going to start pricing in their savings from buying lower cost loads on the market, so you’ll see prices going to $2.50 or so in the weeks ahead,” the analyst said. “But I would not be surprised if some pockets of Southern California see prices at or below $2 per gallon in the future. It just depends on when demand comes back. It’s all supply and demand.”
He cautioned that refinery breakdowns or a dramatic pullback in refinery output could turn prices in the other direction, but with the economy in an incipient recession, those developments still probably wouldn’t be major.
Cinquegrana said that in addition to stay-at-home orders keeping motorists off the roads and away from the pumps, another factor weighing on the energy markets is an ongoing “price war” between the Organization of Petroleum Exporting Countries — led by Saudi Arabia — and Russia, with each side trying to outdo the other in mass oil production and distribution, further pushing prices down.
“So you have both a demand shock and a supply shock,” he said. “I can’t ever remember seeing the two happen at the same time.”
Cinquegrana said there is no veritable “price floor” for oil, so it could continue going down — below $10 per barrel. Roughly two-thirds of the price of gasoline stems from oil input costs, according to OPIS. Cinquegrana theorized that even when the COVID-19 emergency ends and the related economic havoc subsides, changes in the modern workplace may
continue to limit demand for petrol.
“For many companies, there hasn’t been a loss of productivity. It’s not an issue because they started people working from home, telecommuting, like I did with my staff of 10,” he said. “We’re still working just as hard — and longer hours. You could see a scenario where companies decide to forgo office space completely now that they’ve got people doing the same jobs in their homes, and it’s working out. They could save a lot on overhead costs. That would mean a structural change in the demand for gasoline going forward.”