Gas prices: May ‘has brought particular mayhem,’ analyst says

OPIS Global Head of Energy Analysis Tom Kloza joins Yahoo Finance Live to discuss the outlook for rising gas prices ahead of the summer driving season and the supply chain costs for refining and moving oil.

Video transcript

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EMILY MCCORMICK: Welcome back. National gas prices soared to a record high today, reaching $4.43 per gallon on average, as the country continues to grapple with soaring inflation. For more on the energy market outlook, we're welcoming in Tom Kloza, OPIS Global Head of Energy Analysis. Tom, thanks for joining us this afternoon. We saw a brief moderation in prices at the pump last month. Yet, now we're back at all-time highs. Do prices climb higher from here? And if so, where do you expect these prices are going to top out?

TOM KLOZA: Well, they're certainly going higher in the next week or two. And actually, Emily, May is typically when the futures market for gasoline tends to peak. The peak is almost as predictable as the tides. It's from May 5 till May 15. So we're right there. But this May has brought particular mayhem, if you will. We've got the May 15 deadline for some European countries and European international traders, who may cut off sort of their dealings with Russia. And we've got a driving season, which is probably a little ways away, but we'll use a lot more molecules than is what had been kind of a quiet spring so far.

EMILY MCCORMICK: Well, and speaking of that driving season, what do you think these rising prices are going to mean for the summer travel season? Because we've had companies like Airbnb to the airlines saying that they're already seeing strong demand for summer travel. But is that all going to be upended if we see energy prices continue to trend in the direction that they have been?

TOM KLOZA: I think we're looking at higher prices in the next week or so, and then maybe a little moderation before July. But July and August are going to be sizzling months. I mean, people are going to take their trips in July and August, and you also have hurricane season. Now, if against the background of Putin just scourging the Ukraine, if that's still out there, we've got a summer like we've never seen before.

Today, I might add this, for example, that with the exception of crude, every single hydrocarbon out there today-- or not-- but liquids, you know, gasoline, jet fuel, marine fuel, diesel, they all hit national highs. So you're seeing kind of the ramifications of some refining shutdowns in the last year. And it's manifesting itself in much higher prices that are going to make for a May CPI number that gets released in a few weeks that's going to be off the charts.

EMILY MCCORMICK: And speaking of that May CPI number, what specifically are you looking for there? Because economists had been looking for March to potentially be the peak here. We did see energy prices post a deceleration for-- when we take a look at those fuel oil as well as those gas prices on a monthly basis. But what is this actually going to look like when we get that next report in about a month?

TOM KLOZA: We're going to see a lot of insidious inflation because we're looking at, by far, the highest diesel prices ever and, by far, the highest jet fuel prices ever. And that's going to manifest itself in higher airfares and higher cost of pretty much everything that moves around the country, from soup to nuts. So I hope that it moderates when we get to June and July. And of course, we hope that one day we wake up and there's no war in the Ukraine, and then we can see energy prices tumble. But right now, that does not appear to be in the cards.

EMILY MCCORMICK: What is the trickle-down effect of these rising energy prices going to look like for companies that have already this past earnings season, the past several weeks, been talking about higher energy costs, higher transportation costs? Are they showing that they're going to be able to pass on these costs continuously? Or is this really going to be something to watch in these second half of the year earnings reports here?

TOM KLOZA: To a certain extent, some of it's automatic. For example, everything that moves across the country in big rigs, through maritime vehicles, and even air freight, you know, they get automatic adjustments based on surcharges that are compiled by the government. So the cost of moving things from point A to point B is going to go up automatically. Whether that manifests itself in every single item that people buy, do they have pricing power, I don't know. But inflation is still running away out there.

And it's not anybody's fault. You know, I would stress that. It's not-- you know, this isn't about easy money. This really is about all of the energy that typically comes out of Russia that is not going to be coming out in the next weeks and months.

EMILY MCCORMICK: And you talk about, of course, Russia's war in Ukraine. And when we think about the geopolitical impact of that, how much of a bullish impact is this really having on the markets? You know, if this conflict were to be resolved overnight, what kind of an impact would that have on energy markets? And what's your base case for how this is going to really play out over the next year?

TOM KLOZA: The base case is that this continues, that we're in for a long haul of woeful situations. And, you know, regardless of whether you own energy stocks, I think we would all love to wake up one morning with regime change, but I don't think that's likely to happen. And against that other background, we're looking at high inflation, and we're looking at, I mean, epic, epic margins for US refiners right now. Of all the different areas of the energy business, the people that actually refine the crude oil into products like diesel, jet fuel, and gasoline, they're making epic profits, not because they're colluding, but because the market is bidding it up much as though all the kids bid up Bitcoin a few months ago.

EMILY MCCORMICK: And in terms of the policy response, the response that we've been seeing out of Washington, the White House has been releasing oil from the Strategic Petroleum Reserve. And President Biden has also said he would allow certain blends of gasoline to be sold into the coming months to help lower these fuel prices. Are these measures going to be enough to offset some of these supply side concerns that we've been seeing over the past several months at this point?

TOM KLOZA: Well, I think the SPR sales, Strategic Reserve sales, do have an impact. And that's a lot of oil that the US and other countries are going to be releasing. So one wonders if we would be back at $130 to $150 a barrel with oil if we didn't have that. In terms of adding a little bit more ethanol, ethanol is cheaper than gasoline now. But the fact of the matter is, it's not enough to move the needle much because there just aren't that many stations with the equipment that they could sell higher ethanol blends. So it's tough for the administration to act on this. The one thing I think we might see is some sort of speed bumps on exports. Because right now, if there's a runaway market, it's been the diesel market. And we export a lot of diesel fuel now.

EMILY MCCORMICK: All right, we'll leave it there for now. Tom Kloza, OPIS Global Head of Energy Analysis, thank you again so much for your time this afternoon.