In Q4 of 2021, the US economy ends the second year of the COVID-19 pandemic with gas prices at the highest they’ve been in 7 years. With national gas prices at $3.42, up from $2.11 from last year, companies with considerable oil and lubricant needs, as well as everyday Americans filling up at the gas station, are looking for answers.
The oil and gas market is unpredictable, but this sharp rise in prices was foreseeable. That’s why Tilley has been working to strengthen our supply chain capabilities through improved efficiency and acquisitions, and by constantly working with our suppliers to negotiate the best prices possible.
From One Extreme to the Other
April 2020: Prices Hit Rock Bottom
The cause of the current price of oil and gas started at the bottom. In March, April, and May of 2020, worldwide oil demand plummeted due to the COVID pandemic. In the US, oil prices hit historic lows. At one point, on April 20, 2020, futures prices for West Texas Intermediate, a US refinery, saw already low per-barrel prices of $18 bottom out, in effect paying other companies to store oil at $37 a barrel. Demand was so low that producers were hard-pressed to store oil, while average prices fell from $70 per barrel on January 1 to just $9.12 on April 21. That was just 19 months ago.
Oil Production Comes to a Halt
In response, oil suppliers didn’t just pump the brakes on extraction; they came to a screeching halt. By severely limiting supply, they were reacting to an immediate problem. Staring at record-low demand, combined with an oil price war between Russia and Saudi Arabia, saw the spring and summer of 2020 come as two factors set up to collide. On one hand, suppliers had just enacted the largest oil output cut in history. On the other, governments around the world were putting record-breaking amounts of stimulus money into the pockets of private businesses and citizens alike.
The result was skyrocketing demand just as supply dried up.
With news of a vaccine and the inevitable lockdown fatigue of a second COVID-19 winter dovetailed in Q1 of 2021, gas prices gradually rose. Still, oil production isn’t a switch that can be turned on and off quickly. Producers saw considerable lag time in returning to normal levels of production. The reluctance of some suppliers caused the US and several other countries to open up access to their strategic oil reserves in an attempt to meet demand and lower costs.
Supply Chain Management for Oil and Gas Companies
Even if suppliers were operating at full capacity, supply chain management continues to be a challenge for oil and gas companies. Like businesses in almost every industry, labor shortages, localized COVID-19 lockdowns, travel and trade restrictions, and other issues have made delivering crude or refined products extremely challenging. Due to COVID-19 restrictions, labor shortages, and the sheer volume of shipping looking to enter US ports, tankers and cargo ships on both coasts have spent weeks and even months waiting to dock.
2022 Oil Price Forecast
With OPEC and Russia unlikely to offer more encouraging future oil production estimates enough to have a sizeable impact in the US, and with shipping delays expected well into the new year, the 2022 oil price forecast offers little relief. Wall Street certainly sees prices on the rise, with some investors putting big bets on per-barrel prices hitting $100 or even double that.
When Will the Price of Oil Peak?
For energy-intensive businesses and general consumers alike, the future of oil prices is up in the air. While some expect supply chain issues to peak sometime in early 2022, many industry experts believe hesitancy by OPEC+ to increase production, rising operations costs and what appears to be a robust recovery from the pandemic spurs on structurally high prices, possible for several years.
The petroleum additives market, for example, is expected to hold sustained elevated pricing for the foreseeable future, with an estimated 2027 value of $29.1 billion. That market growth means a continuation of the trend towards elevated energy costs for companies that rely on petroleum-based products.
Tackling the Oil and Gas Supply Chain Conundrum
For businesses that rely on a ready and affordable supply of petroleum products and lubricants, having a trustworthy partner is the key. Tilley Distribution is a leading lubricants supplier and distributor to support fleet operations and offers support in everything from antifreeze to industrial solvent and degreasers.
Let’s navigate what comes next together. Learn more about our robust supply chain management systems, our line of Mobil products and our industry-leading customer service. Speak with a Tilley representative today.
