Stay Calm: Gasoline Prices Reach Four-Month Peaks

Gas prices are going up quickly, and it's not even spring yet. In mid-January, prices hit a low of $3.07 a gallon, but now the national average has risen to $3.40 a gallon as of Friday, marking a four-month high.

The rapid rise in prices poses a threat to inflation progress and increases financial strain on some Americans. This trend could jeopardize the Federal Reserve's plan to reduce interest rates in the near future. A surge in gas prices could further complicate President Joe Biden's efforts to gain support for his economic policies.

However, experts advise against panicking over gas prices, at least for now.

Gas prices tend to go up during this time of the year. The transition from winter to spring leads to an increase in demand for fuel as the temperatures rise. Additionally, this period marks the shift from cheaper winter fuel to the pricier summer fuel blend, a change that is currently underway in many states.

Since 2005, there have been only three years when prices fell during this time of the year, according to Bespoke Investment Group. One of those years was 2020, when Covid-19 started to threaten the world economy.

Paul Hickey from Bespoke points out that the year-to-date increase in gas prices through March 7 was just 9.2%, which is slightly higher than the historical average of 8.3%.

Hickey wrote in a report that this year's increase in prices doesn't seem extreme or worrying, given the historical context.

In an interview with CNN, Hickey mentioned that it would take a much larger jump in prices to change the Fed's plans. He added that there is still plenty of room for prices to increase before it would be considered abnormal.

This year, prices have risen sharply in late winter due to issues at refineries. The extreme cold weather in January caused some refineries to stop operating, reducing the amount of gasoline, diesel, and jet fuel available to consumers.

One example is the Whiting refinery located in northwest Indiana. This refinery, which is the largest BP refinery in the world and the biggest in the Midwest, closed down in early February and is still not operating at full capacity.

Gas prices have surged in the Midwest, with drivers in Michigan seeing an average increase of 47 cents and those in Illinois seeing a 43-cent increase over the past month, according to AAA.

Oil prices are currently on the rise, which helps to explain the significant price increases experienced by drivers in the region.

The good news is that refineries are beginning to recover. After reaching a multi-year low in February, the refinery utilization rate, which measures how much oil refineries are processing compared to their maximum capacity, has seen a significant improvement in early March.

Gas prices are still slightly lower compared to last year, even with the issues at the refinery. The national average was $3.45 per gallon a year ago.

Despite various challenges abroad, oil prices have remained stable.

OPEC+, led by Saudi Arabia and Russia, is still restricting oil production to prevent oversupply. Recently, OPEC+ decided to extend its production cuts until June to maintain market balance.

Saudi Aramco announced on Sunday that its profits for 2023 fell by 25% to $121.3 billion, following a record-breaking net income of $161.1 billion in 2022. The decline in profits was mainly due to lower crude oil prices and sales volume.

The Russia-Ukraine conflict is ongoing, while Houthi attacks on vessels in the Red Sea are increasing. Despite this, US oil prices are finding it difficult to surpass $80 per barrel. In fact, crude oil is currently trading only $2 higher than it was at this point last year.

“Oil prices have been pretty dull,” said Patrick De Haan, head of petroleum analysis at GasBuddy.

Is $4 gas next?

Veteran oil analyst Andy Lipow is not increasing his gas price forecast. He anticipates the national average to be between $3.50 and $3.75 per gallon during the summer. While this is not considered cheap, it is a significant improvement from the record high of over $5 in June 2022.

Of course, unexpected events can cause gas prices to increase. For example, a conflict escalation in the Middle East, a significant refinery shutdown, or a severe hurricane hitting US Gulf Coast refineries would all likely lead to higher gas prices.

GasBuddy’s De Haan believes that gas prices will probably remain below $4 per gallon this year. He mentioned that a significant increase in prices would require a remarkable event to occur.

Gas prices may peak sooner than usual this year, according to De Haan. He mentioned that the early increase in prices could lead to a quicker peak.

De Haan added, "By Memorial Day, prices should start to decrease. Typically, prices drop in the fall as well - and this will coincide with the upcoming election."

Editor's P/S:

The recent surge in gas prices, reaching a four-month high, is a concerning trend that threatens to undermine inflation progress and strain household budgets. However, experts advise caution against panic, highlighting the seasonal nature of price increases during the transition from winter to spring. Additionally, the ongoing recovery of refineries and the current stability of oil prices offer some hope for stabilization or even a potential peak in prices sooner than usual.

While it remains challenging to predict future gas prices with certainty, analysts anticipate prices to remain within a manageable range, albeit higher than last year. The ongoing Russia-Ukraine conflict and Houthi attacks on Red Sea vessels are potential risks, but the extension of OPEC+ production cuts and the current trading price of crude oil provide some stability. Unexpected events could, however, trigger price spikes, emphasizing the need for continued monitoring and prudent financial planning by consumers.