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Americans may be having trouble believing their eyes when they see the signs at gas stations.
Average pump prices have now increased 40% since the start of the year, to over $3.10 a gallon nationwide, according to auto club AAA. And the costs are expected to climb further, possibly past $3.30 by the end of the summer — which would be the highest level for gas prices since 2014.
Here’s a closer look at the reasons the cost of gasoline is going up, plus some tips on ways to save money to help cover your costlier fill-ups.
Crude oil prices are soaring
As with gasoline, the cost of crude oil tanked in 2020 while COVID was wrecking economies and preventing people from traveling. To prop up oil prices, the OPEC cartel and its allies slashed oil production last year. They've been slow to boost output again — talks collapsed earlier this week.
"As a result, crude prices are set to surge to a seven year-high," says Jeanette McGee, AAA spokeswoman, in a statement. "We had hoped that global crude production increases would bring some relief at the pump this month."
After a year of soft prices, West Texas Intermediate crude hit $75.16 on July 2, the highest price since the fall of 2014. Crude oil makes up more than half the pump price of regular gasoline, according to the U.S. Energy Information Administration.
Though gas prices are going up, mortgage rates remain historically low — meaning if you're a homeowner, one way to offset the cost of fuel is by refinancing your home loan. Mortgage data and technology provider Black Knight said recently that 14.1 million homeowners could save an average $287 a month by refinancing.
Hurricane season has refiners on edge
Tropical Storm Elsa had the oil industry on high alert in recent days, but the storm stayed far enough east that it didn't upset fuel production in the Gulf of Mexico. But refiners may have more severe weather to worry about this year.
After last year’s record-breaking hurricane season, experts at the University of Colorado this week said they now predict 2021 will feature 20 named storms, including four major hurricanes.
The National Ocean Industries Association says offshore platforms most vulnerable to hurricane damage are designed to hold up against big storms. But refiners still stand to lose money — potentially millions of dollars — if their facilities have to be vacated for major storms.
The industry has insurance to cover some of those losses, similar to why homeowners buy insurance for financial protection in the event of destructive weather.
Having home insurance is a must for homeowners, but overpaying is not. You could save yourself hundreds of dollars a month by shopping around for a better rate when it comes time to renew or replace your policy.
Refineries were already plagued by problems
Over the past year, it's been one thing after another for the refineries that turn crude into gasoline. A few months back, a cyberattack temporarily shut down the Colonial Pipeline in the eastern U.S. and led to refinery shutdowns, gas shortages and long lines at the pumps for days.
In 2021, plummeting fuel sales triggered by COVID had the oil and gas industry reeling. By late 2020 there were more than a dozen refinery closures that reduced U.S. production by more than 1 billion barrels per day.
“It’s possible some capacity could come back online in the 2022-2023 timeframe, but by and large, we think these closure announcements will mostly prove permanent,” Raymond James analyst Justin Jenkins said about the refinery shutdowns in a December report.
U.S. oil and gas producers lost tens of thousands of jobs last year, forcing laid-off workers to lean on their credit cards more than usual. If that's what you've been doing, a lower-interest debt consolidation loan can cut the amount you pay in interest charges each month — and help you afford the higher prices at the pump.
Americans are indulging their urge to travel
With more Americans getting their shots and life beginning to return to something closer to normal, people are driving and flying more. And that activity is contributing to higher fuel costs.
AAA forecast that millions of Americans would be on the move throughout this summer. The auto club had estimated 47 million would travel over the Fourth of July weekend — a massive increase over last year’s holiday weekend that saw just 34.2 million Americans hitting the road.
"With the increase in travel demand, gas prices are going to be expensive no matter where you fill up, so plan ahead," McGee says.
You might want to consider replacing your vehicle with a more fuel-efficient model. If you got money back from the IRS this year, it could be a perfect opportunity to turn your tax refund into a new set of wheels.
Summer gas blends cost more
During warmer months, gasoline has a greater chance of evaporating from your car's fuel system and producing more smog. So the government requires Americans to use cleaner-burning fuel in summer to help lower emissions, says GasBuddy, a fuel-price tracking website.
Refiners produce gasoline blends meant to reduce evaporation, and that's a more expensive process. Those blends can cost up to 15 cents more per gallon, according to the service station trade group NACS.
A good way to fight higher gas costs is by scouting around for lower prices, because what you pay can vary by up to $1 a gallon within the typical metro area, GasBuddy says.
Using comparison shopping and a variety of other tactics to save on the cost of driving is a smart strategy this summer — but, then again, it's always a wise practice. For example, regular price shopping for car insurance can save you as much as $1,100 a year, various studies have found.