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Gas prices are coming back from the pandemic with a vengeance.
When the coronavirus first hit last year, Americans hunkered down at home, demand for gasoline plunged, and prices dropped. Last April, the national average for all grades fell below $2 a gallon for the first time in over four years, according to the U.S. Energy Information Administration.
Now, prices are rising fast — up more than 25 cents a gallon nationwide in the last month to an average $2.68 for regular, auto club AAA reported on Thursday. And it's going to get worse: Fuel prices are expected to see a big spike in the next few weeks, followed by more increases all the way to summer.
Here are six reasons gas prices are going up, plus predictions of how high they're likely to go — so you can start thinking about ways to save money to help pay for your costlier fill-ups.
1. Crude oil prices are surging
As with gasoline, the price of crude oil tanked last spring as COVID-19 wrecked economies and stopped people from traveling. To prop up oil prices, the OPEC cartel and its allies slashed oil production.
But lately, crude prices have been soaring — because OPEC has been slow to boost output again. Oil this month hit $60 a barrel for the first time in over a year, and Goldman Sachs expects prices to hit $72 by summer, according to multiple media reports.
"Crude, not demand, has been the main factor driving gas price increases this year," says Jeanette Casselano McGee, a spokeswoman for AAA. The average price in most states is now higher than a year ago, according to AAA data.
Though gas prices are going up, mortgage rates remain historically low — meaning if you're a homeowner, one way to offset the rising cost of fuel is by refinancing your home loan. You could save thousands of dollars a year.
2. Harsh winter has been tough on refineries
The recent brutal winter weather in Texas has seriously impacted the state’s oil production, forcing refineries to close in America’s top crude-producing state.
Eleven refineries in Texas were shut down at least partially due to the extreme winter temperatures, taking as much as 20% of the country’s total refining capacity offline, says the price-tracking website GasBuddy.
“Oil prices have continued to rally as global oil demand recovers from the worst of the COVID-19 pandemic, and now the extreme cold weather shutting refineries down, U.S. motorists just can’t seem to catch a break,” says GasBuddy analyst Patrick De Haan.
De Haan says gas prices could ease in the near term but then fly high again as summer approaches. That's a good reason to look for a better deal on car insurance, to help hold down your driving costs.
3. The pandemic also knocked out refineries
Long before the storms, the oil and gas industry was reeling from plummeting fuel sales caused by COVID. 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," wrote Raymond James analyst Justin Jenkins about the refinery shutdowns in a December report.
U.S. oil and gas producers lost tens of thousands of jobs last year, and laid-off workers were left scrambling to make ends meet.
Many struggling Americans have been leaning on credit cards more than usual, to get by during the pandemic. If that's you, a lower-interest debt consolidation loan can cut the amount you pay each month — and help you afford the higher pump prices.
4. Vaccinations are expected to boost travel
As more Americans are vaccinated and life begins to return to something closer to normal, people are likely to drive and fly more. And that trend will contribute to rising fuel costs.
“At the foundation of the rise [in oil prices] is the fact that the coronavirus situation continues to improve, pushing global oil demand higher as production continues to lag, pushing U.S. gas prices higher,” GasBuddy's De Haan says.
You can fight back by shopping around for lower gas prices, because they can vary by up to $1 a gallon in metro areas, according to GasBuddy. Also, you might want to consider replacing your vehicle with a more efficient model.
This tax season, you could turn your tax refund into a new set of wheels.
5. Stimulus checks will drive up spending — and prices
Congress is working on giving Americans another $1.9 trillion in COVID relief, including a third round of stimulus checks. The aid is expected to help lift gas prices as consumer spending gets a shot in the arm.
Goldman Sachs estimated last month that $2 trillion in economic stimulus spending over 2021 and 2022 could pump up U.S. oil demand by roughly 200,000 barrels a day. If supplies don't keep up, that higher demand will mean higher fuel prices.
As gasoline gets more expensive, another way you can balance out those higher costs is by spending less on other purchases.
You can download a free browser add-on that will point you in the direction of lower prices and other savings every time you shop online.
6. Summer will bring pricier gasoline blends
American drivers could find themselves spending close to $3 a gallon for gasoline, on average, by Memorial Day, according to both AAA and GasBuddy.
Those forecasts factor in the switch to pricier summertime blends of gasoline, expected to begin rolling out in March. Higher-grade gasoline is used in summer months to reduce emissions that cause smog; those blends can cost up to 15 cents more per gallon, according to the service station trade group NACS.
GasBuddy says the U.S. may ultimately be spared from $3-a-gallon gas this year: "The market could get doused in cold water, however, should OPEC, which controls a third of global oil production, raise production in the weeks or months ahead."
But looking for ways to save on the cost of driving is a smart strategy, no matter what gas prices are doing. For example, regular comparison shopping for car insurance can save you as much as $1,100 a year, studies have found.