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As an intervention specialist with Youth Development Inc., Duane Martinez drives across Albuquerque every day to visit schools and community centers, making him particularly sensitive to this summer’s spike in gasoline prices.
He’s spending about $60 more a month at the pump now compared with early spring, Martinez told the Journal as he filled up Thursday at the Murphy Express, 2707 Carlisle NE. He paid $3.54 per gallon Thursday for premium gas, which he believes can help stretch the life of his 2006 Chevy Impala.
“I spent $59 on gas today, but three months ago it only cost me about $40 to fill up,” Martinez said. “I’m spending a lot more out of pocket, because I drive about 60 miles a day just for work. Then I have to pick up my kid, run errands, and buy groceries before driving back home across town.”
And with prices climbing as well for food and other essentials, Martinez said he’s struggling.
“Inflation is creeping up everywhere,” he said. “We’re paying more now for a gallon of milk and a dozen eggs than two months ago. As a parent, I’m really feeling the squeeze.”
As of Thursday, regular unleaded fuel cost on average $3.09 a gallon statewide, according to AAA New Mexico. That’s up from $2.01 a year ago, and it’s the highest local price per gallon in six years.
Apart from the direct impact on consumers, higher fuel costs are contributing to the general inflationary spiral experienced nationwide since last winter. But rising fuel costs are not by any means the main cause of higher inflation.
Rather, as coronavirus vaccinations gained hold and the economy began reopening early this year, pent-up consumer demand surged, reinforced by federal stimulus spending and higher unemployment benefits that put more money in people’s pockets. And with supply chains for most goods and services still crippled by global pandemic shutdowns, industry and commerce have struggled to ramp back up to meet demand, raising wholesale and retail prices across the board.
Add to that labor shortages in many industries as workers only slowly return to work, along with the continuing roller coaster of pandemic surges with new, more contagious coronavirus mutations, including the delta variant. All that created a perfect storm for inflation, at least temporarily, as supply and demand slowly come back into balance, said Jim Peach, economics professor emeritus at New Mexico State University.
Those dynamics caused fuel prices in particular to rocket upward this year, after the worst oil crash in decades when the coronavirus broke out in 2020. Global demand for oil and gas plummeted by at least 20% during the worst of the pandemic as economies came to a standstill and people stopped driving and traveling.
That left world markets awash in excess oil, driving crude prices from about $60 a barrel before the pandemic to below $15 by May 2020. And with crude prices accounting for more than 50% of the cost of retail gasoline, pump prices fell well below $2 a gallon in mid-2020.
Crude prices began rebounding last fall after the Organization of Petroleum Exporting Countries and other major oil-producing nations agreed to cut back output by more than 9 million barrels a day, easing the market glut. As a result, by early 2021, the price per barrel had climbed back to about $50, and gasoline prices began slowly rising.
But when economies suddenly reopened this year and fuel demand surged, oil prices spiked to their highest levels in nearly seven years, with U.S. benchmark West Texas Intermediate briefly reaching $77 a barrel in early July. Gasoline climbed rapidly along with oil, with pump prices surpassing $3 a gallon at the start of summer.
Now, gasoline prices remain high because global production is only slowly ramping back up as summer travel reaches its peak, pushing U.S. consumer demand back to pre-pandemic levels, according to AAA New Mexico and Boston-based GasBuddy, which tracks gasoline prices nationwide.
U.S. fuel demand is now about 2% higher than in 2019, AAA New Mexico spokesman Daniel Armbruster told the Journal.
“Demand for retail gasoline remains robust, and on average New Mexico drivers are paying $1.08 more per gallon to fill up than one year ago,” Armbruster said Thursday.
Relief in sight
In the coming weeks and months, pump prices will likely start declining again as summer travel eases and as refineries switch from a more expensive, environmentally friendly blend of gasoline that’s used in hot summer months to a less-costly winter blend, said GasBuddy Head of Petroleum Analysis Patrick De Haan.
“We’re at a place now where oil and gas prices are starting to cool off,” De Haan said. “We should soon see national average costs begin to decline, especially after the Labor Day weekend.”
How fast prices drop and how low they go depends on OPEC members and others that are steadily increasing crude production again, and whether the coronavirus delta variant makes another significant dent in demand, said Daniel Fine, a longtime oil expert with the New Mexico Institute of Mining and Technology in Socorro.
OPEC members and other countries have restarted output for about half of the 9 million-plus barrels per day they cut last year, and they will continue to add back another 400,000 barrels per day each month through December, Fine said.
That, combined with a sharp ramp up in Iranian production based on new agreements with China to buy its crude, could significantly lower prices by the end of the year, Fine said. In fact, the price for U.S. benchmark WTI declined to about $65 a barrel last week.
“The price will spike downwards during the fall,” Fine told the Journal. “I see it reaching $50 to $54 a barrel by December.”
Gasoline prices, in turn, could fall below $3 a gallon to rest in the upper $2 range by the end of the year, De Haan said. But that depends on the pandemic’s continuing evolution.
“With the new coronavirus variants, things can change dramatically from month to month,” De Haan said.
But any decline in pump prices will be welcomed by consumers.
“This is ridiculous,” Melvin Wilson said while filling up his 1995 Dodge Ram at Sam’s Club on Renaissance NE in central Albuquerque on Thursday. “I’ve got a beast of a tank, and the prices just keep going up and up.”
Scott Rimel, who commutes daily from Los Lunas to work in Albuquerque, said it’s costing him $15 more now each time he fills up his 2004 Saturn Ion.
“I have a truck and another big vehicle, but I don’t drive them anymore because it’s too expensive,” Rimel said. “With this car, I have to fill up every four days. It’s hitting me big time.”