Gas prices: Why the national average could keep going up
Gas prices in the US continue to rise, a trend that is likely to continue into the summer months.
As of March 22, the national average gas price stood at $3.53 per gallon, $0.26 higher than a month ago, according to AAA data.
Gasoline prices have been steadily climbing higher, increasing by nearly $0.10 in the last week as higher oil prices and falling inventories put upward pressure on fuel costs. Drivers could see sharper increases in the weeks ahead.
“This is the time of year we normally see pump prices start to rise,” Andrew Gross, a AAA spokesperson, said in a statement on March 14. “And while prices have been rather pokey so far, they should begin to accelerate and move higher very soon.”
GasBuddy head of petroleum analysis Patrick De Haan told Yahoo Finance Live in late February he sees gas prices rising another $0.20 to $0.50 per gallon by Memorial Day as "seasonal ups and downs" come into view.
While some of the disruptions from COVID-19 and the initial shocks from Russia's invasion of Ukraine dissipate, other catalysts could support higher oil prices — and, therefore, gas prices — as the summer draws nearer.
Last week, gas demand decreased slightly to 8.81 million barrels per day from 9.04 million barrels the week before. Although lower demand normally contributes to easing pump prices, higher oil prices counteracted that pressure and ushered in the higher cost of gas, according to AAA.
The national average is now more expensive than a year ago for the first time since December, putting hopes of a $3 average well out of reach. Gas prices had been declining between September 2023 and January of this year to a one-year low of $3.07 before snapping that streak. The last time the national average gas price fell below $3 was in May 2021.
"Most years see a greater seasonal advance than what has occurred so far this year," OPIS head of energy analysis Tom Kloza wrote Yahoo Finance in an email. "However, it is an election year, so there is more scrutiny than normal. March and April will most likely see a quickening in the pace, and there is an inordinate amount of refining capacity that is either down for planned maintenance or down because of problems that cropped up with the winter cold snaps."
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What determines the price of gas?
More than half of the price consumers pay at the pump comes from crude oil, according to the Energy Information Administration.
Oil demand and the production targets set by the largest oil producers, including the Organization of Petroleum Exporting Countries (OPEC) and its allies (OPEC+), play an important role in gas price fluctuations.
Gas prices have climbed higher as crude oil prices surged in recent weeks.
As of March 22, crude oil futures for West Texas Intermediate (CL=F) were hovering around $81 per barrel while Brent (BZ=F), the international benchmark price, traded near the $85 level. Brent and WTI have gained about $10 per barrel since the start of the year.
The OPEC+ announced earlier this month it is extending production cuts of 2.2 million barrels per day through the second quarter, which sent oil prices higher.
Geopolitical risks have also put upward pressure on prices. Escalating Ukrainian drone attacks on Russian refineries led several oil facilities to suspend operations, sending global crude prices higher.
And ongoing attacks against vessels in the Red Sea by the Houthis, an Iran-backed rebel group, have become a wild card for oil prices in 2024. The attacks by Houthi rebels have prompted energy and shipment companies to avoid the Red Sea region that connects to the Suez Canal, a critical pathway between Asia and Europe.
"I think right now the Middle East is something we continue to watch, though there hasn't been much impact [on oil prices]," De Haan said. "The Middle East could certainly change. We've seen situations where things drastically change overnight, and of course, there's a lot of crude oil being produced in the Middle East."
At the same time, crude oil prices aren't the only factor driving gas prices. Seasonality, refining capacity, and distribution also influence prices.
"This is the time of year that there's a lot of pressure on refineries," De Haan explained. "They are doing maintenance before the summer. They are transitioning over to summer gasoline. In the background, demand is all going up at the same time. That puts a lot of pressure on refineries to finish that maintenance, to get back online and boost production."
Gasoline prices typically rise heading into the spring as more motorists get on the road after a winter lull.
State and federal gas taxes also contribute to the overall cost of filling up. In California, the state with the highest gas tax, taxes add up to $0.51 of the overall price per gallon, while drivers in Alaska pay just $0.09 per gallon.
Furthermore, gas prices act as a barometer for how consumers feel about the economy, factor into elections, and contribute to the larger inflation story that prompted the Federal Reserve’s latest interest rate hike campaign.
Higher gas prices in February were one of the main drivers behind a surprising rise in inflation reported earlier this year.
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