Gasoline prices usually fall this time of year as vacation season ends. So why are they jumping?
This is not supposed to happen at this time of year.
At a moment when gasoline prices are usually heading down, the reverse is happening. Prices are soaring amid a sudden increase in the price of oil, which is refined into gas for cars.
Normally, prices ease after the end of the summer travel season as vacationing Americans go back to school and work.
This time, though, the upward pressure on prices due to the increase in oil is causing pain at the pump.
“I don’t think we’re going to see much of a decline this fall like we usually see,” said Patrick De Haan, head of petroleum analysis for fuel-savings app GasBuddy.
The national average price of gas has been at a seven-year high in recent days. As of Thursday morning, it was $3.30, up from $3.24 a week ago, $3.18 a month ago and $2.18 a year ago, according to AAA.
That means it costs $13.44 more to fill up a 15-gallon tank today than it did at this time in 2020. That’s more than $50 a month in additional costs for anyone who fills up weekly.
Blame it on the price of oil, which is trading at around $80 per barrel. That’s up from the low $60s at one point in August and the low $70s in September.
De Haan predicted that gasoline price would rise by another few cents per gallon in the coming days.
Here’s what you need to know about rising gas prices:
Why oil is pushing up pump prices
The Organization of the Petroleum Exporting Countries (OPEC) recently met and decided not to increase oil production as a way to build up supply and therefore lower prices amid the global economic recovery.
That means key members of the oil cartel, like Saudi Arabia, won’t be extracting more oil from the ground,keeping global supplies low and prices higher.
To be sure, OPEC’s influence over the global oil market has declined in recent years amid a surge of production in the U.S. and elsewhere.
But U.S. producers haven’t increased production quickly because they fear that investments in fossil fuels could prove to be a poor use of their resources, De Haan said.
“The (Biden) administration has made it plain and simple that they are going to be pushing a very, very accelerated time schedule to get off fossil fuels,” he said.
Oil could be diverted for heating purposes
A global spike in natural gas prices is causing some energy companies to consider switching to oil to generate heat this winter.
That unexpected increase in demand is reverberating through the supply chain and affecting the price at the pump.
That demand to turn a bigger share of petroleum into hearing oil comes as “oil production has lagged far behind,” De Haan said.
Regional gasoline prices soar
In some areas of the country, the spike in gas prices is eye-popping.
California is Exhibit A. The state’s average per gallon was $4.46 on Thursday, up $1.26 from a year ago.
“California and San Francisco specifically may spend a record amount of time at these prices,” De Haan said.
De Haan said he does not believe the state or San Francisco will reach an average of $5 this year. But he did not rule it out for 2022.
“That’s a topic that could come up for next spring and summer depending on if any of these supply chain issues get resolved,” he said.
The average price at the top 10% most expensive stations was $4.20 last week, compared with an average of $2.77 at the cheapest 10%, according to GasBuddy.
Will the U.S. take action?
President Biden is frustrated at rising gas prices, and the Department of Energy is considering releasing crude oil from the U.S. Strategic Petroleum Reserve, a massive government supply of crude set aside for emergencies. The goal is to help ease prices.
But that might not have a big impact. Goldman Sachs analyst Damien Courvalin estimated that such a move would lead to a $3 decline in the price of a barrel of oil.
It might not last
In the end, the pain at the pump may be temporary.
While oil production hasn’t ramped up much yet, it will likely catch up next year, according to a report by research firm Fitch Solutions.
“We think that growth in crude oil supply will soon outpace that of demand and that the (price of) crude oil … will fall in 2022,” the group reported.
Fitch is forecasting the average price of Brent crude, the global benchmark, will be $67 in 2022.