The high price of gasoline is displayed at a Los Angeles gas station on November 24, 2021. – With … [+] inflation surging ahead of the Thanksgiving holiday, US President Joe Biden has drawn on the seldom-used Strategic Petroleum Reserve to combat rising oil prices that have fueled the recent spike. (Photo by Chris Delmas / AFP) (Photo by CHRIS DELMAS/AFP via Getty Images)
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I know the public has done a lot of complaining and blaming this year about the rise in the price of gasoline. As I have explained recently in multiple columns (for example), the price rise can be squarely attributed to the crash and subsequent recovery of oil demand brought on by the evolution of the Covid-19 pandemic.
To recap, when Covid lockdowns happened in 2020, the price of oil crashed as demand crashed. As the economy opened back up, demand bounced back strongly, but oil production can’t respond as quickly. Some oil companies went out of business. Some marginal wells were shut down. Drilling plummeted, and that was going to impact oil production for many months.
If demand hadn’t recovered so strongly — or if supplies had completely recovered — we wouldn’t have seen such dramatic price hikes.
Well, be careful what you wish for. Because one way to swiftly curb high gasoline prices is to rapidly reduce demand for oil. One way to do that is the emergence of a new variant of Covid that threatens to disrupt oil demand. It looks like this scenario is now materializing:
Oil drops 10% in worst day of the year as new Covid variant sparks global demand concerns
Of course those that want to credit or blame the President for everything may note that this is just a couple of days after he announced a release of oil from the Strategic Petroleum Reserve (SPR). But trust me, that’s not what this is.
Sure, a new Covid variant is all the economy needs right now. We all remember what happened in the spring of 2020. Lockdowns. Masks. Travel restrictions. Many countries are already sounding the alarm. And, the stock market is getting hammered today on the back of those fears.
But hey, lower gasoline prices are coming. At least that’s something.
