Gas prices could double next year, JP Morgan oil analysis predicts

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Industry oil chemical metal barrels stacked up in waste yard of tank and container, Kawasaki city near Tokyo Japan. (GETTY PREMIUM FOR WFLA USE ONLY)

TAMPA, Fla. (WFLA) — Crude oil prices fell over Black Friday, dropping to $68.15 per barrel. While the drop meant lower prices at the pump, whether or not the lower costs will remain is still uncertain. An analysis of the oil market by J.P. Morgan predicts gas prices doubling in 2022 and 2023.

AAA, which checks and tracks gas prices across the United States daily, reported that the barrel cost dropped 13% at the end of the day on Friday. They said it was the lowest daily price since Sept. 9.

Gas in Florida was close to $3.00 per gallon when it did.

“Unless oil prices rebound this week, Florida drivers should begin to see significant relief from the pain at the pump,” AAA spokesman Mark Jenkins said. “The recent drop in futures prices could result in a discount of around 25 cents per gallon or more. But it’d be unusual for that discount to hit the pumps overnight. Gas prices normally rise like a rocket and fall like a feather.”

The average price of gasoline in the U.S. was $3.39 on Nov. 30 and $3.33 in Florida, according to AAA’s gas price tracker. According to AAA, the highest prices for gas in Florida are in West Palm Beach, where gas is $3.49 per gallon. Okaloosa County is the lowest, at $3.19.

Uncertain oil prices in near future

While AAA predicted that lower oil costs could stay and give consumers some relief at the pump, an analysis from J.P. Morgan on crude oil costs and supply said that prices are more likely to go up in the future, not stay lower. Prices per barrel had already gone up as markets opened Nov. 30.

The cost of Brent crude was $70.74 as of 11:27 a.m. on Nov. 30, according to OilPrice.com. The report from the online price aggregator has a reported 11-minute delay on price fluctuations. Price values could change by the close of the market, and later throughout the week as markets open, close and adjust to investor trends and other factors.

A report written by Christyan Malek, J.P. Morgan’s head of oil and gas research, said the price of oil could go up to $125 next year. The J.P. Morgan analysis was published on Nov. 29 and is predicting crude prices will average $88 per barrel in 2022 before “overshooting” to the $125 price point.

Malek’s report said part of the issue is how much spare oil is available for 2022. The proprietary analysis on oil prices and reserves conducted by J.P. Morgan said that they believe the Organization of the Petroleum Exporting Countries’ “true” reserves are “43% below consensus estimates” of their spare capacity.

The analysis reports that OPEC is going to slow increases of oil harvest in early 2022, and that the organization will be unlikely to increase the available supply “unless oil prices are well underpinned” as it will give the reserves a chance to “improve the resilience of its spare capacity.”

Malek’s report said this would secure a balanced market to tolerate future demand shocks and support fiscal balances for OPEC. Additionally, it could “save” barrels for higher costs when strategic petroleum reserves have an inventory drawdown, or major price changes.

The analysis looked even further ahead to 2023, and predicted the price per barrel could sit at $82 per barrel in 2023 before experiencing another overshoot and rising to $150 per barrel.

Estimating future pump prices

The U.S. Energy Information Administration reports that the bulk of cost at the gas pump comes from the price of crude oil.

Splitting the cost of regular gasoline by source, crude oil prices account for 57% of gas at the pump, while refining accounts for 17%, distribution and marketing costs 11% and taxes make up the final 15% of what you pay per gallon.

For the sake of calculation, a single barrel of oil contains 42 gallons of oil. If crude oil costs $125 per barrel at its highest in 2022, it could make the cost per gallon after refinement, marketing, distribution and taxes about $4.42, based on the costs broken down by the EIA.

Let’s break down the math for this price estimate.

A $125 barrel of oil has 42 gallons, meaning that each gallon of oil in there is worth about $2.97 per gallon.

Then you add in 17% for refinement, making it cost $3.47 per gallon.

When you add the additional 11% of the cost for marketing and distribution, you end up at $3.85 per gallon.

Adding in the final 15% for taxes would put gas prices at the pump while crude oil is $125 per barrel at $4.42.

Still, it’s important to note that not all cities, states or communities in the U.S. have the same tax burdens on gasoline, some have more, some have less. At the $150 barrel cost predicted for 2023, gas at the pump would be about $5.33 per gallon for regular gasoline.

The potential oil costs to double amid ongoing inflationary pressures doesn’t spell a positive future for the U.S. or global economies.

Shipping costs are already on the rise due to fuel price increases. The release of some oil in the U.S. special petroleum reserve and drop in price over Black Friday helped gas costs shrink slightly, but those changes and solutions are only temporary.

Copyright 2022 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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