By Art Nash, Energy Specialist
Last week I was watching a classic comedy movie from the late ‘70s where the star and crew drive a pickup from the West Coast to Denver. Just after passing over the Continental Divide, a scene of him filling up caught my attention, as it was at a familiar self-service fuel station from my hometown — with a sign advertising gas for 51 cents per gallon.
A barrel of crude at the time the film was shot was about $9. Yet today, a barrel of crude runs $105, and gas is running $5.50 or so per gallon. If the increase in crude over the last four decades correlated consistently at that station on the Colorado Front Range, the price of gas there would be closer to $5.80 a gallon.
So while increased rates in the price of crude oil don’t necessarily reap proportional pump price increases for a given location, they can run close. JP Morgan Chase analysts recently came up with a near future projection of crude increases climbing to $380 a barrel if output is gravely reduced by Russia’s response to the latest trade sanctions. If correct, such an increase would obviously almost quadruple the price of crude and that would most likely mean toward $20 a gallon (and probably over that here in Fairbanks). And of course fuel oil prices would also follow.
If such a drastic reaction took things down this road, there most likely would be a substitution of heating and fuel sources by some residents and possibly an increase of electric transportation being demanded or bought. If history from the ‘70s is an indicator, with steep price increases on the fuel end, residents would probably change how often and far they drive. Carpooling might come back into vogue.
On the commercial side, there may be projects, fuels or technology that in the past were marginally cost effective. Those may be now ready for production and marketable under such a price increase on crude. And of course at the state level, in terms of Alaska revenues, it could cause a boon in funding of the annual budget. Nationally, I suspect there would be a change in the quantity of fuel flowing out of the national reserves to increase supply and suppress prices (at least temporarily).
The international response, though, could be the most interesting. In the immediate, oil producing nations could be expected to increase their production and get in on the higher prices. Yet since the ‘70s OPEC as a cartel has had a strong influence with coordinating and determining much of the world’s oil output. And while Russia is not a member state, it has in the last half dozen years been influential in terms of OPEC’s supply decisions.
In the short term, you can download apps on your phone to track in real time where the cheapest gas prices are in the state before filling up your vehicle with fuel. Keeping an eye on the price of crude with websites such as oilprice.com can keep you in touch with emerging trends for timing of large quantity purchases such as planning for winter fuel oil deliveries. Residents can also check into conversions of other heating systems. And of course keeping your vehicles tuned up and employing home energy efficiency steps as summer projects can help you get the most bang for the buck on fuels you purchase.
Oh, and for what it is worth, Citibank analysts are predicting that crude will drop down to $65 and possibly $45 a barrel by the end of 2023.
Keep aware and to the extent you can, prepare.
Art Nash is statewide energy specialist for the University of Alaska Fairbanks Cooperative Extension Service. Contact him at 907-474-6366 or by email at alnashjr@alaska.edu.
