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SALT LAKE CITY — The impact of COVID-19 is reaching all the way to the gas tank, as prices at the pump are beginning to fall.
And some analysts believe the downward trend could continue as long as the coronavirus outbreak affects social behavior.
Over the past few weeks, gasoline prices have declined as demand for fuel has fallen as many would-be drivers have parked their vehicles in an effort to practice social distancing in the wake of the coronavirus pandemic. To add to the matter, conflict among some of the top foreign oil producers has also contributed to falling fuel prices as crude oil prices have plummeted in recent weeks.
“Oil is cheaper due to Saudi Arabia increasing production and market concerns about COVID-19,” said AAA Utah spokesman Aldo Vazquez. “So the crude war between Russia and Saudi Arabia and COVID-19 concerns are the main drivers for cheaper prices.”
Just one month ago, the price for a barrel of West Texas Intermediate or crude oil was $51.43, while the same barrel went for $23.55 as of Monday’s close of business. In foreign markets, OPEC crude sold for $56.14 this time last month, while Monday’s closing price was at $28.57 per barrel.
Across the United States, prices at the gas pump have fallen, with 29 states currently averaging under $2 a gallon for regular unleaded, according to AAA. In the Beehive State, the average price for regular is at $2.44 per gallon, with some area locations much lower.
Vazquez said prices are decreasing nationwide, though the trend usually lags behind in the West. He added that the recent outbreak has definitely affected people’s driving habits, but fortunately not fuel production.
“AAA hasn’t noticed any disruption because of COVID-19. Actually, what we’ve been seeing is that although the West Coast region continues to have the most expensive state averages in the country, it has also seen significant decreases and prices at the pump are dropping and dropping fast,” he said.
In Utah, the average price dropped 5 cents from last week and prices could fall even more, he said.
“Typically gas prices start to trend (upward) at the beginning of the spring season as motorists get out and try to enjoy that warmer weather and travel for spring break,” he said. “That isn’t the case this year, with Americans urged to stay at home and practice social distancing to slow the spread of coronavirus, we’re seeing less traffic on the roadways, which will ultimately drive down demand, increase gasoline supply and push prices (downward) for the foreseeable future.”
Meanwhile, Tom Holst, senior policy analyst at the University of Utah’s Kem C. Gardner Policy Institute, said the International Energy Agency is forecasting a drop in crude oil demand for the first time since the 2009 economic downturn. He said contributing factors are a deep contraction in China’s oil consumption plus disruptions to global travel and trade due to COVID-19 containment measures. He noted China has been the world’s largest energy consumer over the last decade.
On the supply side, declining crude oil demand created by the coronavirus has caused disputes within the OPEC-plus cartel (15 OPEC members plus Russia), he said.
“OPEC-plus has not reached a consensus on crude oil production targets needed to maintain stable crude oil prices,” he explained. “The impasse has forced oil-producing countries to chase dwindling sales outlets, creating downward pressure on crude oil prices that plummeted over 30% (in recent weeks).”
In Utah, Uinta Basin waxy crude oil revenues move in tandem with the national benchmark crude oil, West Texas Intermediate, he explained. The Uinta Basin waxy crude will likely continue to move by truck to Salt Lake City refineries because the crude’s high paraffin content is an obstacle to pipeline transportation to national and international markets, he said.
AAA hasn’t noticed any disruption because of COVID-19. Actually, what we’ve been seeing is that although the West Coast region continues to have the most expensive state averages in the country, it has also seen significant decreases and prices at the pump are dropping and dropping fast.
–AAA Utah spokesman Aldo Vazquez
Speaking about the global impact of the COVID-19 outbreak, Holst said the world economy will feel the effects of the virus in a significant way.
”With the coronavirus, there will be a slowdown in the economy (and) less need for energy. As some global economies have progressively slowed down, demand is decreasing,” he said. “When you have an oversupply plus shrinking demand, that puts downward pressure on oil prices.”
The last time prices were this low was at the end of the 1990s, he recalled, when prices fell below $20 per barrel. However, prices would eventually soar to record levels during the Great Recession, topping $165 a barrel in mid-2008, he noted.
That kind of unpredictability makes forecasting oil and gasoline prices rather challenging, he said.
“Typically, the volatility in the crude oil markets is driven by unrest within OPEC nations — things that go on in Iraq or Iran or in that area that may disrupt crude oil production,” Holst said. “In this particular case, coronavirus leads out to drive down demand and then on top of that you have the the failure to reach agreement within OPEC about what crude oil price levels they want to target.”
