Consumers are currently facing a unique juxtaposition: prices are lower than ever at the gas pump, but rising steadily at the grocery store. It’s no surprise that the coronavirus pandemic is responsible for both, but when will prices finally return to normal?
Why Did Gas Prices Plummet?
Back in April, gasoline prices dropped lower than any month on record. Demand was a fraction of what it was before the coronavirus, yet the market was flooded with supply. Traders and investors panicked as they learned that the nation’s 91 million barrels worth of storage capacity for crude oil was almost entirely filled.
At the same time, Saudi Arabia and Russia flooded an already oversupplied market with excess crude oil in the course of their epic price war. OPEC+ finally agreed to cut oil prices, but the production cut didn’t begin until May, causing an ongoing supply and demand issue.
This led to negative oil prices, which fell as low as -$37.63 a barrel for the first time in history. Lower gas prices at the pump became the most visible domino effect of the oil industry’s crisis.
Prices at the Pump May Rise Soon
According to an economic report by Kiplinger, gasoline prices won’t stay low much longer. The price per gallon is slowly inching its way up as demand rises and consumers gradually deplete surplus stockpiles.
As the Kiplinger report explains, “Oil producers around the world are curbing output, and refineries have scaled back their production of motor fuels. So, while demand is still relatively weak and stockpiles of oil and refined products are high, the market is tightening.”
Indeed, Benchmark West Texas Intermediate, which was trading around $10 per barrel in April, has climbed back above $24 per barrel. Investors are hopeful that the combination of decreased production and increased supply- especially as U.S beaches tentatively reopen for summer travel- will balance the scales.
The Grocery Store Dilemma
Though consumers are saving at the pump, they’re losing those savings at the grocery store. According to the Bureau of Labor Statistics, the price of groceries grew 2.6% in April, the largest monthly jump since 1974.
Meats, fish, eggs, and poultry experienced the biggest price hikes, with eggs increasing 16.1% compared to March.
Higher prices resulted from a perfect storm of events: as restaurants closed and forced consumers to buy groceries to cook at home, food producers and farmers struggled to deliver their supplies to grocery stores in a timely manner. Coupled with the “panic shopping” behavior often seen before hurricanes and blizzards, prices had nowhere to go but up.
Unfortunately, the ripples of the coronavirus may impact food prices into the summer and fall. J.M Smucker Co, for example, recently announced it is cutting its discounts to grocery stores by terminating promotions scheduled between April 17 and November 30. Grocery stores will have no choice but to pass along the higher prices to consumers.