Why are gas prices going up this month?
Typically, prices at the gas pump drop during the dead of winter, as lousy weather keeps Americans off the roads. But something unusual is happening this year: Gas prices are skyrocketing.
The national average for regular gasoline jumped to $3.51 per gallon on Friday, according to AAA. Although that’s a long way from the record of $5.02 a gallon last June, gas prices rose 12 cents last week and 41 cents last month.
In all, the national average is up more than 9% since the end of last year, the biggest increase to start a year since 2009, according to Bespoke Investment Group.
AAA says some states have seen much larger gains over the past month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).
The unusual increase in the price of gasoline during the winter is drawing the attention of American drivers who are already dealing with high prices at the supermarket. It also threatens to undermine improvements in the inflationary crisis that plagued the economy for much of last year.
So why are gas prices going up?
It’s not because of the demand, which is still weak, even for this time of year.
Instead, the problem is the supply.
Extreme weather across much of the United States near the end of last year led to a series of disruptions at refineries that produce the gasoline, jet fuel and diesel that keep the economy going.
For example, Colorado’s only refinery, the Suncor refinery outside Denver, was disrupted by freezing temperatures. When the refinery attempted to restart, it suffered a fire and equipment damage.
Suncor has indicated that the refinery, which Lipow Oil Associates says represents 17% of the Rocky Mountain region’s refinery capacity, could be out of service for at least a few weeks.
That helps explain why Colorado gas prices have risen by nearly $1 a gallon in the past month.
Refineries elsewhere have also been sidelined by extreme weather. US refineries are operating at just 86% capacity, below the mid-range of 90% in early December, according to Bespoke.
Beyond the refinery woes, oil prices have risen, helping drive prices at the pump north.
Since falling to $71.02 a barrel on December 9, US oil prices have risen 16% to around $82.30 on Friday. That rise has been driven in part by expectations of higher global demand as China relaxes its Covid-19 policies.
At the same time, oil markets no longer receive massive injections of emergency oil from the Strategic Petroleum Reserve. The Biden administration has gone from releasing unprecedented amounts of oil from that reserve to beginning the reloading process.
The good news is that some of the refinery’s problems may prove temporary, meaning supply should catch up with demand.
The bad news is that some experts warn that gas prices may continue to rise anyway.
Andy Lipow, president of Lipow Oil Associates, expects the national average to reach $3.65 a gallon by spring.
Patrick De Haan, GasBuddy’s head of oil analysis, worries about the typical spring jump in prices will be pulled forward.
“Instead of $4 a gallon in May, it could happen in March,” De Haan told CNN. “There is more upside risk than downside risk.”
A $4 gas refund would be painful for drivers and could hurt consumer confidence. In addition, the pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to rein in its campaign to raise interest rates.
The Cleveland Fed’s nowcasting model for inflation now points to a 0.6% monthly increase in the consumer price index for January. If so, it would represent a significant acceleration compared to the 0.1% drop in prices between November and December.