Right now, the price to fill up at the pump may not feel all that bad. With the average price of a gallon of gasoline around $3.30 in the U.S. this week, down about $1.50 since its peak last summer, the issue has fallen out of the headlines.
But as China reopens its economy and the Russian war in Ukraine shows no signs of ebbing, analysts are warning that the price of crude oil may rise back above $100/barrel this year. The price at the pump would follow shortly thereafter: in mid July, the last time the U.S. benchmark price for oil hit $100 per barrel, the average price of gas at the pump was more than $4.50.
A spike in the price of oil is good news for the oil and gas firms that have reaped record profits in recent years. But another rise in oil prices would bring with it pocketbook pain for consumers at a time when household finances are already tight. And, in turn, it would be safe to expect a re-ignition of political battles over gas prices that defined much of last year.
Concerns that the price of oil may spike again began in earnest early this month as China indicated that it would do away with its intense COVID lockdown measures. These measures had slowed economic activity in the country as people stayed home, which in turn dented oil consumption. Oil demand in the country fell last year by 400,000 barrels per day, the first fall in more than 30 years.
The rapid reopening and push for growth could lead demand to soar. In a research note, Swiss banking giant UBS said that it expected oil demand to rise by 1.6 million barrels per day this year. “We see three-quarters of global demand growth in 2023 coming from emerging Asia,” the bank said on Jan. 4, citing China’s reopening. A Jan. 9 research note from U.S. bank Goldman Sachs suggested that global oil demand would rise 2.7 million barrels per day, pushing the global benchmark for crude oil to $105 per barrel. More than 60% of that growth is expected from China.
Still, this outcome remains far from certain and other analysts have pointed to countervailing factors. A significant recession could slow down economic activity and reduce demand for oil. Meanwhile, countries that are members of the OPEC+ oil cartel could decide to ramp up production.
Politicians are already bracing themselves for the political fallout. Republicans in Congress proposed legislation earlier this month to tie use of the U.S. Strategic Petroleum Reserve (SPR)—an oil storage facility controlled by the federal government—to the production of oil and gas on federal land. The theory behind the bill, at least in the telling of its Republican backers, is that restrictions on use of the SPR would force the Biden Administration to make it easier for oil companies to drill. (In reality, U.S. oil companies have increased production with caution to ensure that their operations remain profitable).
The bill has virtually no chance of passing the Democratically controlled Senate, and President Biden has said he would veto it in any case. Still, the Biden administration has mounted a full-throated defense, presumably because administration officials recognize the fraught politics of high gas prices. On Monday, U.S. Energy Secretary Jennifer Granholm took the podium at the White House daily press briefing and argued that the administration helped push down the price of gas by releasing oil from the SPR.
She also mounted a preemptive defense of the administration should prices rise again. Gas prices are “obviously based upon international and climate events,” she said. “What happens in China? Are they going to be opening up soon? [Are] there expectations regarding an increase in demand? That is something that happens on a global market.”