What does California’s “full reopening” mean for fuels markets?
June 15, 2021
By Dave Hackett
It’s been a weird, rough year for everyone, hasn’t it? As the world begins to return to the “new normal,” lots of folks are wondering what, exactly, that will look like. In our area of expertise, we’ve received a number of questions from clients and reporters pondering the potential economic impact of California’s “full reopening” today, June 15th. What might that mean for California drivers and for gas prices? I have a few quick thoughts on the subject which I thought I’d share.
From a fundamentals perspective, gasoline demand has recovered from 2020 but is still a bit below the 2015–2019 average. Jet fuel demand is higher than a year ago, but still strongly depressed because the airlines haven’t recovered. Because the economy gets to work on a diesel truck, diesel demand is roughly what it was in the past. (Shameless plug: You can follow these trends and much more over on Stillwater’s West Coast Watch transportation fuels market information portal.)
Gasoline and diesel prices are up strongly in the last year, primarily due to much higher crude oil prices. OPEC has kept a lid on production, and the U.S. producers have been relatively slow in turning domestic production back on. This has led to $70/barrel light sweet crude oil.
Taxes and fees are also up. California’s state tax will bounce up a penny or so. Fees for Low Carbon Fuel Standard and Cap & Trade will cost gasoline consumers over 30 cents per gallon. For the average consumer, that is about $225 per year.
Anecdotally speaking, I suspect people want to get out of the house and will start to travel again in the coming months. This shift won’t be instantaneous, because many are still cautious, but the urge to travel will grow strongly. Fortunately, from an inventory perspective, there is plenty of gas in the West Coast fuel tank to support what people want to do.