Gas Prices Will Soon Be Under $1 As a Result of COVID-19 Lockdowns, Saudi and Russian Price War
Minnesota drivers might have noticed falling prices at the pump over the weekend, and prices are about to fall below a dollar per gallon of gasoline, at least that’s my prediction based on the fact that crude oil prices have now fallen to a 17-year low.
Prices are falling because many people are no longer commuting to work and businesses are closed to help slow the spread of the COVID-19, and because a price war is being waged by Saudi Arabia and Russia, the second- and third-largest producers of oil in the world, behind the United States.
Demand Drops from COVID-19
According to an article in The Financial Times, attempts to slow the spread of COVID-19 have caused the largest drop in crude oil demand in history and some analysts believe crude oil demand could fall by 25 percent next month due to lockdowns in Europe and North America.
Demand for oil is expected to fall so dramatically because most of the world’s airlines are grounded, and it takes approximately 5 gallons per mile for a Boeing 747 to travel. As a result, airplanes account for approximately 8.5 percent of U.S. fuel consumption, it seems entirely possible that oil demand could fall by 25 percent in April.
COVID-19 has also prompted a price war between Saudi Arabia and Russia, who had previously been working together, along with the rest of the countries belonging to the Organization of Petroleum Exporting Countries (OPEC), to restrict the supply of oil on the market and increase prices. However, falling demand for oil, and the lower prices that come along with it, have caused these two producers to increase production and compete with each other for market share.
This cuts both ways in the United States. Oil importing states like Minnesota are benefiting from the price cut, as families spend less money at the pump, but it hurts oil producing states like Texas and North Dakota, because shale oil has traditionally cost more produce than large conventional oil fields in Saudi Arabia and Russia.
In Minnesota, a year’s-long price war that brings gasoline prices below $1 per barrel would save the average family about $1,400 per year. This is the equivalent of 95 hours of work for someone who earns $15 per hour, which makes these saving seem even more signficant.
There aren’t many silver linings to be seen in fallout of the COVID-19 outbreak at the moment, and savings on gasoline seem a little trivial given the number of people who have either gotten sick or lost their jobs in the last two weeks. Some analysts are saying we could be in for the worst economic situation since The Great Depression. Time will tell, but here’s to hoping you and your families are healthy and safe.