Retail gasoline prices were knocking on the door of setting a Labor Day Weekend high but seem to be leveling out as Hurricane Idalia slowed gas demand, states Phil Flynn of PRICE Futures Group.

Gasoline demand had been running at an average of 9.0 million barrels a day, up by 1.8% from the same period last year which is near a two-year high. Looking back to June, the Energy Information Administration (EIA) reported gasoline demand hit 9.279 million barrels a day which was the highest since July of 2021. And while we will start to see some relief when we start to switch back to winter blends of gas, the reality is that because oil supplies will tighten, the scourge of high gasoline prices will be with us for a long time.

The Labor Day gasoline numbers are interesting, and readers of The Energy Report are not surprised by this gasoline price surge. We were skeptical of a market that kept betting that demand would crash in the future while we saw evidence to the contrary. The EIA confirmed that US total petroleum demand in June hit 20,716 million barrels a day which was the highest since November 2019. We have warned that Biden’s misuse of the Strategic Petroleum Reserve would discourage investment and restrict supply that normally would have responded to a tightness of supply. By artificially releasing barrels of oil to try to control prices, it left us facing a global oil supply deficit and it has given OPEC and Russia more control of oil and gasoline prices. While many said that Biden’s policies would not put upward pressure on gasoline prices, at some point they must admit they are wrong.

EIA data shows that the record-high for gas prices during the week leading up to Labor Day was set in 2012 at $3.84 a gallon. AAA says that today prices are at $3.818 down from $3.825 yesterday. This pullback comes as AAA predicted that Labor Day gasoline demand would be up 4% year over year, but the storms could slow that down a bit. It is still possible that we could break the record if we see better-than-expected demand stands today or if we get any refinery glitches.

Zerohedge writes, “While we are sure that the Biden administration will loudly proclaim their victory by crowing that pump prices for gasoline are down over 20% from the highs last summer (June), they may be a little less forthcoming about the fact that gas prices are also up over 23% year-to-date”. They also write that, “gas prices are up over 80% since President Biden’s election—probably just a coincidence. After adjusting for inflation, retail gasoline prices going into this Labor Day weekend are 4% lower than the prices ahead of Labor Day 2022, but on a nominal basis they are the highest since 2012.”

The Energy Report was skeptical of predictions that gasoline prices had topped out before the Fourth of July because we had real concerns about the fact that refiners had to run at record pace to keep up with demand and the fact that gasoline inventories were near record lows. But the main reason we were bullish on gasoline prices was we knew that we were going into a period of a trend of rapidly falling crude oil supplies. As we have written when Biden’s ill-fated SPR release ended we would end up being starved for oil supply. Now that refiners can’t tap the SPR, they are drawing down the CME Group Delivery Point at an astounding pace.

John Kemp at Reuters wrote that “Cushing crude inventories have declined in five of the most recent six weeks by a total of nine million barrels (-24%) since July 14. Cushing stocks were -12 million barrels (-29% or -0.81 standard deviations) below the prior ten-year average on August 25 having been less than -1 million barrels (-2% or -0.06 standard deviations) below on June 30. We also need to point out that diesel prices are not getting the same break. Triple AAA is $4.452 down from $4.453 yesterday. Distillate squeeze is on due to the lack of global refining capacity for heavy oil in part because of the movement to get from fossil fuels. The sanction on Russia and Venezuela has also played a part as it reduced heavy crude supply that yields more dispel.

We need to point out that the distillate shortage was made worse by the Biden administration's cancellation of the Keystone XL Pipeline which would have allowed more east flow of Canadian heavy oil that yields more diesel than US shale oil. The decision to cancel Keystone did matter and it’s costing trackers and manufacturers money today. Biden’s killing of the pipeline made no sense as it was proven that the pipeline would have no impact on greenhouse gas emissions and it was done out of vindictiveness and spite, the one thing that we know Biden is very good at.

While the EIA reported that gasoline demand was at record highs, the top in US production may be here. Reuters is reporting that “US crude oil production was essentially flat in May compared with April—a sign lower prices and a slowdown in drilling activity are finally causing output to peak and turn down. Crude and condensates production for the Lower 48 states excluding federal waters in the Gulf of Mexico rose by just 19,000 barrels per day compared with a month earlier. Production was still up by more than one million barrels per day (+9%) compared with the same month a year ago (“Petroleum supply monthly”, US Energy Information Administration, July 31).”

This came a day after adjusted EIA figures reported that US oil production hit a near record. Stephanie Kelly at Reuters wrote that “(Reuters)—US field production of crude oil rose 1.6% in June to 12.844 million barrels per day, the highest since February 2020, before the coronavirus pandemic destroyed demand for fuel and other oil products, the Energy Information Administration said on Thursday. Production in Texas rose 1.1% to 5.518 million bpd, its highest on record dating back to 2005. In North Dakota, production also rose, gaining by 3.3% to 1.155 million bpd, the highest since December 2020.

As we get towards the shoulder season, we hope to see some price relief. This is why we’ve been very concerned and have been recommending that users get prepared for this run-up in price.

Natural gas prices are hanging in there as well. The EIA reported that working gas in storage was 3,115 Bcf as of Friday, August 25, 2023, according to EIA estimates. This represents a net increase of 32 Bcf from the previous week. Stocks were 484 Bcf higher than last year at this time and 249 Bcf above the five-year average of 2,866 Bcf. At 3,115 Bcf, the total working gas is within the five-year historical range.

Learn more about Phil Flynn by visiting Price Futures Group.