I see the price at the pump has gone up ~$0.20/gallon in the last week!
Anyone care to speculate why??
I don't know that we need to speculate, the reasons are fairly straightforward. Sure, when we consider what might happen with oil and gas prices going forward we're going to be speculating a good deal. We don't know what is going to happen on various fronts and we surely don't know what the market is going to come to expect on those various fronts. But when we're talking about what has already happened, it's usually pretty easy to understand why it did (at least when it comes to significant moves or trends). Such is the nature of energy pricing markets, they behave fairly rationally based on the givens - at least more so than a lot of other marketable instruments' pricing markets do because, for one thing, energy markets are on a shorter clock so to speak for getting pricing correct than some of those other markets are (If it isn't clear what I mean by that, I'm happy to explain it and why it's the case). It's not knowing all those givens ahead of time that makes it difficult to further know what the markets will come to expect as to those givens and then how those markets will behave in response to those givens and their own expectations.
Anyway, to answer your question, pump prices have been going up over the last couple of weeks because wholesale gas prices have been going up for the last few weeks. To go a little further on gas prices in particular before turning to petroleum pricing in general, those wholesale gas prices turned around and started up shortly after total U.S. gasoline inventories flattened in what looks (for now) to represent a peak. For a couple of months U.S. gasoline stocks had been climbing steadily and rapidly, going from about 200 million barrels to about 240 million barrels. In other words, supply was exceeding demand by about 4 million barrels per week on average over that time. About a month ago those inventories stopped building and, as of the latest reported week, they're fairly flat - we didn't see a major increase over those weeks. Supply and demand have, perhaps, stabilized for the most part. (It is, of course, too soon to tell with the condition will hold.) So that's why gas prices have, it seems, bottomed for now. Have they bottomed for good or at least for a long while? I'm not entirely convinced, but I'd guess it's more likely than not that they have.
As for crude oil prices, which are up considerably over the last couple of weeks, and to put it simply - we're seeing more and more indication that the low prices are working, that is to say that future production expansion will be slowed by prices having gotten this low. Oil market pricing depends first and foremost on supply / demand balances - but, importantly, on speculation about supply / demand balances in the future, not necessarily actual current supply / demand balances. That's why, as markets can't know for sure what's going to happen in the future to affect supply / demand balances, oil pricing can be wrong at times (and almost always will be wrong to some small degree). But, for reasons I've referred to before, it can only be wrong by so much for so long before it has to correct. Previously it was (we realize now) wrong enough for long enough that a major correction was needed - the mis-pricing itself significantly affected supply / demand balances (which is why pricing can only be so wrong for so long). That's what we've been seeing and benefitting from over the last 6 months or so. But as has been said before, not only did pricing have to correct it had to overcorrect in order to suck up the significant excess supply that had been created by incorrect (i.e. too high) pricing. That's why oil prices have gotten as low as they have.
At some point though oil prices were going to find a bottom. And, at some point, they were going to start creeping back - the overcorrection could only last so long (unless we saw some other major changes / trends relating to oil production / consumption). Future supply expectations would decrease enough and/or future demand expectations would increase enough as a result of lower prices that higher oil prices would be called for based on those changed expectations. Now, for my own part, I'm not completely convinced we've seen the bottom for oil prices or that the bottom we have seen won't be retested. Only time will tell. But oil pricing markets have seen considerable evidence that lower prices are going to affect how much new oil production is added this year. New well permits have fallen considerably. Energy companies are announcing layoffs and revising rig (usage) projections downward. Rig counts (i.e. those currently being used) have been falling. Companies are announcing major reductions in their capital expenditures for this year - in other words, they aren't going to be spending nearly as much money trying to develop additional production because, at current crude prices, it doesn't make as much sense to spend that much money. BP last week added its name to the list of companies tightening their purse strings, and oil pricing responded immediately by moving upward.
Crude production 6 months from now will not be as much as it would have been 6 months from now had oil prices not fallen so drastically. There's little doubt about that now. (Though, to be clear again, we're only talking about a small portion of overall production - but that portion is what matters when it comes to pricing.) Is it enough? Are production loses going to be enough to justify oil prices going meaningfully higher? Who knows? But the point is, if you want to know why oil pricing (and gas pricing) has been moving back up of late, it is pretty simple: Pricing markets, at least at this moment, think supply will be cut enough and/or demand will be boosted enough to bring supply and demand back into balance (at higher prices). So, prices move higher. It isn't rocket science. Though we can't really know ahead of time when particular price movements are going to happen, we do understand what it is that will make them happen - the general cause, not necessarily the specific causes. And when they do happen, it isn't hard to identify the general cause (or often even the specific causes).
It'll be over $3 per gallon by the end of the month.
