Gas prices could eclipse $4/gallon as oil rallies in the spring: Analyst

GasBuddy Head of Petroleum Analysis Patrick De Haan joins Yahoo Finance Live to discuss Omicron's impact on crude oil trading, his company's predictions for 2022 gas prices, and forecasted consumer behaviors adapting to these costs.

Video transcript

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JULIE HYMAN: Gasoline prices climbed in 2021, and if GasBuddy is correct, they're going to keep going up this year. Patrick De Haan is with us now. He's GasBuddy head of Petroleum analysis. Patrick, it's good to see you. You guys are looking for what, $4 a gallon gas by Memorial Day? What do you think is-- what's going to be the main driving factor behind this?

PATRICK DE HAAN: Well, I think a lot of what we're expecting is a continuation of what we saw early on in the pandemic, and I should say, in 2021 demand surging as the nation recovers from COVID-19, global oil demand continues to recover. Now we are in the midst of Omicron, but so far it's less severe and so countries in the months ahead as cases eventually subside, will likely turn back to oil. We'll likely see oil demand accelerate. At the same time, oil supply has been playing a game of catch-up really since last summer when demand came roaring back and so supply is chasing demand. It won't quite catch up this year until the latter half of the year. And in the interim, the first six months of the year, we could see that national average eclipse that $4 a gallon mark as oil prices are likely to rally in the spring.

JARED BLIKRE: Now, I remember $5 gas from the prior financial crisis, this is going back to 2008, I think. But that was when inflation wasn't rearing its ugly head quite the way it is this time around. I'm just wondering, adjusted for purchasing power, how high are current gas prices versus their historical norm?

PATRICK DE HAAN: Definitely not as high when you put it into context. I mean, 2008's national average hit about $4.11 a gallon, that would mean that today we'd have to go well beyond that, probably closer to $4.50 to set a inflation-adjusted record. So as you mentioned, I mean, we're probably not likely to set inflation-adjusted records. But in the mind of many Americans who haven't seen prices spend much time nationally above that $4 mark, I still think it's going to be a very significant year to see that psychological level breached for the first time in potentially 13 years.

JULIE HYMAN: And as we look at this average US household spending on gas, what is the-- that's the absolute number, what about in terms of percentage, sort of share of household spending that gets spent on gasoline?

PATRICK DE HAAN: Well, certainly there's been a very sharp rebound, especially if you were to add 2020 in when we spent obviously far less, and not only that, but we commuted far less. So you know, it's been a very sharp increase from 2020 to 2021 and now in 2022, a higher percentage is being eaten away by high fuel expenses. Of course, that percentage depends on where you are, states like Illinois, and California, New York, that generally have high prices, consumers there spend less than 5% of their income on fuel. But some of the states in the South, Alabama, and Mississippi, some areas, some cities spend over 10%, even approaching 15% of their annual income on fuel. And this is going to be another year in which some of those numbers really start to climb.

JULIE HYMAN: And Patrick, I'm also curious at what point do we start to see push-back from consumers traditionally? So-called demand destruction, where people are consciously driving less as they see these prices go higher?

PATRICK DE HAAN: Well, I think you certainly could see that in the year ahead. We didn't see that a whole lot in 2021 simply because Americans were so sick of COVID that I don't think any high price would have really kept people off the road from celebrating summer for the first time in what, two years. So I think this year there's going to be more price sensitivity because so many Americans did get out last year but I think that cry of many Americans will probably be $4 a gallon. I mean, we're already used to $3, we're seeing it in most states and have in most states. The next psychological barrier will be that $4 a gallon mark. And keep in mind, in California, it could be the $5 barrier mark.

JARED BLIKRE: And just thinking about these high prices, we're coming off the holiday season, I don't think anybody said, OK, gas prices are too high, I'm just going to not drive to grandma's house this year. But now that we're in January, and maybe there's not so much mandatory driving around, when do we see the next potential crunch? Is that the summer drivetime season or is there some little pocket maybe around spring break where we could also see prices kind of get jacked?

PATRICK DE HAAN: Well, you'll really start to see prices accelerate at some point, probably in March, it will coincide with the refinery maintenance. If there's any unexpected refinery kinks, that could be the catalyst that starts the trajectory higher. And keep in mind, we're talking about less refinery capacity than we had pre-COVID, so that could be a sticking point, and we also transition to summer gasoline. So January and February, probably the calm before the storm. Then prices really will likely accelerate starting in March, and that could last really through Memorial Day weekend or even June before we start to see some relief in the second half of the summer.

JULIE HYMAN: Hey, Patrick, finally, I'm curious about the interplay between these higher gasoline prices and car buying and the choices that people make. In other words, in the past when we've seen prices go up, that has driven some demand to hybrid vehicles for example. Now we have a lot more choice in terms of hybrid and electric vehicles than the last time that we saw gas at these elevated levels. So do you expect to really see this drive a big migration on that front?

PATRICK DE HAAN: I would. It takes Americans about a year, maybe two years for them to adjust to whatever the current gas prices are, especially in 2020 when we saw very low gas prices, Americans aren't yet in this mindset that prices have been very high for very long, and it takes high gas prices at least a couple of years to start changing that mindset. So as we enter this year ahead, it will be the second year of high gas prices, and that's right around where you start to see more Americans say, OK, I'm going to start looking at EVs more seriously. But again it's going to take higher prices for more of that thinking, more of that move to EVs to accelerate.

JULIE HYMAN: All right, Patrick, thanks so much. Good to catch up with you. Patrick De Haan, GasBuddy head of petroleum analysis. Even though he's sharing with us some scary forecasts for those gasoline numbers, thanks, Patrick. Appreciate it.