Get Ready for a Potential Increase in US Gas Prices this Summer
As spring arrives, so do higher gas prices, a trend that the American Automobile Association (AAA) likens to seasonal temperatures. This year, experts predict that the average cost of gasoline could rise to $4 per gallon nationwide, putting pressure on inflation and weighing on motorists’ wallets.
Industry experts warn that the upward movement in gas prices could reaccelerate after drifting back and forth by a penny for the past week. Andrew Gross, a spokesperson for AAA, explains, “Gas prices are settling into a pattern similar to last year when the usual seasonal increase was slow and steady.”
While motorists have enjoyed a slight break from recent weekly price hikes, Patrick De Haan, head of petroleum analysis at GasBuddy, warns that the country is not out of the woods yet. He cautions those in the Mid-Atlantic and Northeast regions, saying, “You haven’t yet finished the transition to summer gasoline, so you may experience some sticker shock in a few weeks.”
The costlier production process of summer-grade fuel, which can add as much as 15 cents per gallon to the final cost, is one factor behind the potential increase. However, the significant climb in gas prices has mainly been driven by the ongoing rally in global oil markets.
Crude oil accounts for more than half of the price of gas, and prices have surged due to tight global energy markets, geopolitical tensions, and Federal Reserve policy expectations. West Texas Intermediate (WTI) crude prices have topped $85 per barrel on the New York Mercantile Exchange for the first time since October 2023. Brent, the international benchmark for oil prices, is eying $90 a barrel on London’s ICE Futures exchange, a level unseen in six months.
The rise in gas prices is not surprising given the solid energy demand worldwide. Several major economies are expected to avert a sharp downturn, with the US experiencing better-than-expected economic growth and domestic manufacturing recording its first monthly expansion since October 2022. However, rising energy prices could facilitate a second wave of inflation, potentially delaying the Federal Reserve’s first rate cut.
While the United States faces challenges, other countries have reported better-than-expected economic data. Canada narrowly avoided a recession, Japan’s services sector experienced soaring optimism, and European oil demand exceeded projections.
The state of supply also plays a role in the potential increase in gas prices. OPEC and its allies, OPEC+, have extended their voluntary output reductions into the second quarter, exacerbating tightness in the market. Additionally, Ukraine’s drone attacks have damaged several major Russian refineries, reducing Russian crude processing capacity by approximately 1 million barrels per day.
US crude output has stalled at 13.1 million barrels per day, while gasoline demand is down about 4 percent compared to the same time last year. National drilling activity has hit a roadblock, with the number of active drilling rigs remaining steady at around 500 since September 2023.
As global crude inventories reach 16-month lows and demand in the first quarter exceeds expectations, the risk of global supply deficits increases. Geopolitical strife, including tensions in the Middle East and the Houthis’ attacks in the Red Sea, adds to the rally in oil prices. Traders are closely monitoring the situation for potential delivery delays and higher shipping rates.
JPMorgan Chase strategists believe that Brent crude prices could touch $100 a barrel by September, which could further contribute to higher gas prices. Should this prediction come true, $4 gas might not be out of the realm of possibility this summer.
Motorists should prepare for the potential increase in gas prices and consider adjusting their budgets accordingly. As we head into summer, it’s important to keep an eye on global oil markets, geopolitical developments, and economic trends that could impact gas prices in the coming months.
