Gas Prices Could Surge. Is It Time To Buy In?

Are you filling up your tank to take a summertime road trip? If you are, you may notice that you’re paying a little less than you did this time last year. As of July 1, the average retail gas price in the U.S. was between $3.47 and $3.49 a gallon. This is 4.1 cents more than on June 24 but 4.8 cents less than last year.

In 2018 and 2019, the average gas price was $2.72 and $2.60, respectively. This price dropped dramatically in 2020 to $2.17, at a time of COVID lockdowns and a buildup of oil supply. As driving increased in 2021, so did gas prices, reaching an average of $3.01.

In 2022, there was an unprecedented gas price spike in the U.S., to $4.90, following Russia’s invasion of Ukraine. Gas prices dropped significantly in 2023, with an average price of $3.52, and 2024 has seen a further decline, although the price greatly varies by state.

Why the relatively low prices? A few different factors are in play. China continues on its economic downturn, which dampens global oil demand. OPEC+ production has increased in the past two months, mostly from Iran and Nigeria, despite output limits previously agreed upon. Continued high prices for food and housing may be stretching household budgets, causing people to travel less.  

How Did We Get Here?

The price of crude oil is the main factor of gas prices, and it is driven by supply and demand, which is shaped by geopolitical events, economics, the weather, and more. For example, Russia’s war with Ukraine caused a major upheaval in global gas and oil markets, driven by sanctions, supply restrictions, and purposeful sabotage. High wholesale prices and market volatility were the result. The threat of a wider Middle East conflict, which is far from being resolved, causes further uncertainty and price volatility.

The oil industry is complex. Although demand may be waning in China and the U.S., among other regions, over the past month, crude oil prices have been rising. The benchmark West Texas Intermediate (WTI) saw a significant uptick of about 3.6% in the past week, driven by concerns over supply availability. Domestic supply is also tight. U.S. crude stockpiles experienced a dramatic reduction of 12.6 million barrels, far exceeding market expectations and suggesting robust domestic demand for the summer and export activity. The chance of extreme weather, such as record heat and hurricanes, also causes oil prices to rise amid supply concerns.

One way to reduce the chance of oil price spikes is to produce oil domestically. The U.S. Energy Information Administration (EIA) forecasted in March that U.S. oil production would increase by 260,000 barrels a day this year, a rise of 90,000 barrels per day from its prior prediction.  

What Investors Need To Know

Despite many unknown factors, including continuing efforts to move away from fossil fuels into alternative fuel sources to combat climate change, analysts suggest a strong bullish sentiment for oil prices in the coming months. Oil prices have demonstrated impressive growth, climbing approximately 12.4% over the past month alone.

For investors looking to cash in on rising oil prices, here are some stocks with moderate to strong buys from industry analysts:

• Chevron (CVX) – Price: $154.16 – market cap: $284.39B – Strong Buy
  (Reliable returns and long-term growth potential)
• Conoco (COP) – Price: $111.84 – market cap: $131.04B – Strong Buy
• SLB, formerly Schlumberger (SLB) – Price: $46.00 – market cap: $65.95B – Strong Buy
  (Investment firm Benchmark believes the company is undervalued)
• Exxon Mobile (XOM) – Price: $111.86 – market cap: $508.57B – Moderate Buy
  (Piper Sandler recently raised the price target to $145 with an overweight rating)
• EOG Resources (EOG) – Price: $125.00 – market cap: $71.80B – Moderate Buy
• BP (BP) – Price: $36.55 – market cap: $101.29B – Moderate Buy

Neither Julie Stoller nor Stocks.News have positions these companies.