Your eyes can’t deceive you: Gasoline prices are rising again. On Wednesday, the national average for unleaded gasoline was $3.88 per gallon, the highest since October, according to AAA.
That’s well below its peak in June 2022, when the average briefly topped $5 a gallon after Russia’s invasion of Ukraine depleted global oil supplies and sent fuel costs soaring. But it is still much higher than the historical average, even in summer when prices tend to rise.
It was a slow but steady climb. According to AAA, the price of a gallon of gasoline has risen about 20 percent since the beginning of the year and more than 8 percent since June 1. By comparison, gas prices rose more than 40 percent in less than four months following Russia’s invasion of Ukraine in February.
High gas prices are causing headaches for elected officials and consumers, particularly less wealthy Americans, and are posing a challenge to policymakers at the Federal Reserve, which has sought to curb rapid inflation over the past 18 months.
Here’s what’s driving the recent surge at the pump and how gas prices could rise next.
What is the cause of the increase?
Gas prices are primarily influenced by the price of oil in commodity markets and can therefore be influenced by a variety of factors, including geopolitics, weather and financial investor sentiment.
These crude oil prices have skyrocketed in recent months. Since June 1, the American crude oil benchmark West Texas Intermediate has risen by almost 30 percent.
One reason for this is that Saudi Arabia and Russia have cut production until the end of 2023. Another reason is that despite the economic downturn, China continues to import oil on a large scale to mitigate geopolitical risks and support its manufacturing and transportation industries, said Clay Seigle, director of global oil services at Rapidan Energy Group.
The unusually hot summer in the northern hemisphere also contributed to this. The heat has led to a reduction in production capacity at refineries, said Aakash Doshi, head of raw materials in the North America division at Citi Research.
And the Strategic Petroleum Reserve – which President Biden has used to drive down oil and gas prices – is historically low. The government has delayed replenishing reserves due to high prices and is unlikely to do so until prices fall from their current levels.
However, prices could fall.
In most states, the decline involves a switch to a cheaper gasoline blend with more butane. Gasoline prices also tend to fall in the fall as demand declines after peak driving season.
Global economic growth is also expected to slow in 2024, meaning there will be less demand for oil, which will push gas prices back down, Mr. Doshi said.
Some analysts say production cuts in Saudi Arabia and Russia may not last in the new year, potentially removing another pressure point.
The cuts, which drove up prices by restricting supply, were already lucrative for the world’s largest oil producers, known collectively as OPEC Plus. That means, Mr. Seigle said, there is no great need for oil producers to extend the cuts over a longer period, which could lead to excessive inflation in energy prices and falling consumption.
“You should look at today’s oil market from a ‘mission accomplished’ perspective,” Mr. Seigle said.