Normally low gasoline price stimulate the economy, but that’s not expected in the current market as COVID-19 and international factors depress the local, national and world economies.
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LAKELAND – Consider the current gasoline price market akin to staying at home on a Saturday night without a date.
“I think gas prices in the state right now is like being all dressed up with no place to go,” said Mark Jenkins, a spokesman for the Auto Club Group in Tampa, the AAA affiliate in Florida and 10 other states. “This is the kind of price Florida would dream of having at this time of the year, but they can’t enjoy it.”
Gas prices in Florida usually increase this time of year because of rising demand from spring break, spring training and other tourist draws, he said.
Allison Mac, an analyst with the website GasBuddy.com, agreed.
Normally a decline in gas prices would stimulate the economy by encouraging more travel and commercial vehicle activity, Mac said. Instead, the current low price situation represents how much the COVID-19 pandemic has depressed the economy.
“Even though we have these low prices, it’s not something to have a lot of good feelings about. There’s no place to go,” she said.
The average gas price in Polk County on Thursday dipped to $1.87 a gallon, according to the AAA website. The Florida average was $1.93 per gallon while the national average stood at $1.97.
Prices have declined roughly 30% from the average from $2.70 to $2.75 a gallon a year ago, Jenkins said.
The pandemic-related economic decline, lowering the demand for gas, plays just one role in the price plunge, Jenkins and Mac agreed.
An oversupply of oil on the world market stemming from a dispute between two of the largest global producers, Saudi Arabia and Russia, also is playing a significant role, they said.
When the two countries couldn’t reach an agreement on cutting back production to meet world demand by early March, Saudi Arabia announced it would increase production. The move was seen as stratagem to drive down global oil prices on the assumption Russia is more dependent on oil revenue than Saudi Arabia.
The stratagem worked. On March 9, the day after the Saudi announcement, global oil prices plunged 25%, Jenkins and Mac said. They’ve settled into the low $20 range during the past week.
On Thursday, the U.S. benchmark oil price showed signs of a rebound, increasing more than 20% to almost $25 per barrel, according to the website oilprice.com. The price had sunk to $20.09 on Monday.
“The big factor is the market is unstable. The Saudi-Russia dispute is always there,” Mac said. “If that changes, we can see oil prices stabilize quite a bit.”
Publicly there’s no sign Saudi and Russian leaders are negotiating a production agreement, Mac and Jenkins said.
Low oil prices are also affecting the nation’s agricultural sector, especially the corn industry. About 40% of the nation’s corn crop goes to producing ethanol, a gasoline additive and alternative.
“This tiff between Saudi Arabia and Russia is putting the U.S. fracking industry under pressure. It’s putting the ethanol industry under pressure,” said Garrett Toay, a commodities analyst with AgTraderTalk.com. “Nobody can make money at $20 a barrel.”
The global decline was particularly hard on the ethanol market because of the cost of production for the alternative fuel, he said.
“If you buy ethanol, you’re actually driving your costs up,” Toay said.
In the current market, the wholesale cost of gasoline with ethanol is 4 cents per gallon higher than oil only, he added.
As a result, the ethanol market has collapsed as producers have shut down plants, Toay said. The only thing keeping the market afloat is a federal regulation requiring the use of at least 15 billion gallons of biofuels in 2020.
The ethanol collapse casts doubt on Tuesday’s U.S. Department of Agriculture’s forecast of 97 million acres of corn to be planted this spring, he said.
But the USDA surveyed corn farmers in the first two weeks of March, before the collapse, Toay said.
“At that time, it made sense to plant corn. In the last two weeks, the worm has turned, and it’s turned pretty dramatically,” he said. “I don’t think there’s any chance we’re going to get what the USDA predicted.”
Low prices and declining demand have led to another problem depressing the gasoline market – a shortage of storage capacity — the analysts agreed.
Across the farm belt, growers have filled their storage tanks with gas to take advantage of the current prices, Toay said. His own tanks are full.
Non-farm businesses with their own fuel storage have also topped off their tanks, Mac and Toay said.
“This is a historic and unprecedented collapse,” said Jason Bordoff, director of the Center on Global Energy Policy, in a tweet cited in the Washington Post. “The oil market is broken. There is simply nowhere physically to put all the oil when no one needs it. And prices will continue falling as we fill every nook, crevice and bathtub.”
Jenkins, Mac and Toay could not say when demand would rebound because nobody knows when the COVID-19 restrictions would be lifted.
AAA projects the average Florida price could dip below $1.60 a gallon before the crisis ends, Jenkins said.
Neither does it appear a supply agreement between Saudi Arabia and Russia is imminent, the analysts said.
“If Saudi Arabia and Russia come to an agreement, that’s the big event that could change prices,” Mac said.
Kevin Bouffard can be reached at firstname.lastname@example.org or at 863-802-7591.
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