Record high gas prices may continue through June, energy analyst says

KPMG Global Head of Energy Regina Mayor joins Yahoo Finance Live to discuss the rise in energy prices, supply challenges, and the outlook for gas prices over the summer driving season.

Video transcript

AKIKO FUJITA: Well, energy prices are continuing their climb, spurred by the war in Ukraine and a COVID-recovery-induced spike in demand. US consumers hoping to ease their pain at the pump getting little relief with the national average for gas hitting $4.59 a gallon, according to AAA.

Let's bring in our guest Regina Mayor. She's KPMG global head of energy. Regina, good to talk to you on this Monday. You've already got low inventory, demand outstripping that, and we're at record prices when we're not even in the peak summer season when we usually see a spike. I mean, how price-- how high do you think the prices go?

REGINA MAYOR: Well, you're absolutely right, Akiko, that we're not even in the peak summer driving season yet, but we have this big confluence of pressures with significantly restricted supply and demand that continues to go up. So refinery utilizations in April were down for seasonal maintenance. We anticipate that that'll go up to 95% utilization midsummer. And we've seen more demand. The recent research showed that in March of 2022, Americans drove 3% more than they drove in March of 2019. So we're not seeing the typical reduction in demand that sometimes these high-price environments can lead to. So my expectation is we'll continue to see record-high gasoline prices through June, and hopefully maybe we see some easing toward the latter part of the summer.

BRIAN CHEUNG: Regina, it's Brian Cheung here. Great to speak with you.

You talk about supply or rather demand, but I want to kind of drill down a little bit deeper-- no pun intended-- into the supply side of things. You actually note that rig counts will continue to increase because suppliers know about this increase in demand. Is that going to be enough? And then also what's the lag time for that to actually bleed through if that were to perhaps provide a little bit of downside pressure on prices?

REGINA MAYOR: Right, Brian. So 60%-- rig counts are up 60% in the US year over year, which is significant. The US shale players in particular are taking action. It definitely has a lag, six-plus months, sometimes even longer when you're talking about the bigger plays in places that are nonshale plays.

And it's still a proverbial drop in the bucket. The big mover is the impact of the Russian stocks coming off the market and OPEC Plus's relatively slow trickle back of the supply that they've been withholding by 400,000 barrel per day increments month to month. So we're not going to see any major changes in the supply front, and that's why we see crude at $110 per barrel, and we probably will see that throughout 2022.

AKIKO FUJITA: Yeah, Regina, as you pointed out, I mean, this isn't just about the US players. We're obviously watching what's happening overseas. How much of that supply you think gets tighter even further as Europe really considers their energy future? They haven't gone the way of the US just yet, obviously, because they're more reliant on Russian oil and gas. But as they try to shake things out over there, are we expected to see that supply tighten even more?

REGINA MAYOR: Well, I would actually expect the reverse over time, Akiko, because I think the EU has put together very credible plans to reduce their reliance on Russian oil. So while Russia was probably considered to be an oil superpower covering Europe, that is going to change radically.

So there are a number of initiatives underway that will accelerate the move to lower-carbon solutions and reduce that reliance. And so I think that the energy transition is accelerating in this environment, even though in the short term, fossil-fuel prices are a lot higher than we would have expected.

BRIAN CHEUNG: All right, well, for everyone's sake, hopefully gas prices will go down soon. Regina Mayor, KPMG global head of energy, thanks so much for stopping by this morning.