Even before OPEC+’s decision to cut oil production on Wednesday, US gas prices were rising. More price increases at the pump are almost certainly on the way.
In AAA’s daily reading Wednesday, gas prices rose nearly 3 cents a gallon to $3.83 a gallon, the largest one-day increase in nearly four months.
Even though today’s prices are still well below the June record of just over $5.03 per gallon, the 99-day streak of price declines from mid-June to September 20 may become a distant memory. Gas prices have risen every day but one since then, rising by 16 cents a gallon, or 4%, since they peaked two weeks ago at $3.67 a gallon.
Price increases have been slow and incremental for the most part, but that may be changing. OPEC+, which includes not only members of the oil cartel but also other major oil producers such as Russia, agreed to cut oil production by about 2 million barrels per day on Wednesday.
Oil futures rose about 2% on the news, and gasoline futures rose slightly as well. Gasoline futures are up about 20 cents per gallon since the price drop ended last month, indicating that higher prices are possible.
Since mid-June, oil and gasoline futures have been falling due to growing concerns about a possible recession, which would reduce demand for gasoline and oil, among other factors.
According to Tom Kloza, global head of energy analysis for OPIS, which tracks gasoline prices for AAA, the recent increases are the result of an unusually high number of US refineries shut down for maintenance work. He claims that nearly 18% of the country’s refining capacity is now shut down.
“A lot of it got pushed back in the spring because they were making so much money,” he explained. “The margin of error in US refining capacity is so thin right now that any capacity loss has to affect prices.”
This is typically the time of year when gas prices fall as regulations requiring cleaner but more expensive gas to combat smog expire in most of the country. The end of the summer driving season also reduces demand, which drives down prices.
Unfortunately, the refinery capacity squeeze “means gas prices will not fall as much as I had hoped,” according to veteran oil analyst Andy Lipow. “They might even drift upwards.”
Another factor that has contributed to recent price declines is the release of approximately 1 million barrels of oil per day from the nation’s Strategic Petroleum Reserve, which is set to end on November 1.
“Nobody knows what happens when SPR sales end,” Kloza said.
California, which typically keeps its rules requiring the summer blend of gasoline in place until November, lifted the requirement early last week, which could reduce prices. Even if it only affects gasoline in California, this could lower the national average price. Because the state accounts for about 9% of US gasoline consumption, the change may have an impact on the national average even if prices do not change elsewhere. The average price per gallon there is $5.52, by far the highest in the country.
“I don’t believe we’ll see significant changes in national prices.” even if California prices return to the pack,” Kloza said.
Gasoline price declines have been an important check on rising overall prices, as well as a boon to consumer spending because it means more money in consumers’ pockets.
The average US household purchases about 90 gallons of gas per month, so the drop from $5.03 to $3.67 a gallon late last month represented a savings of about $120 per month. In comparison, the 16-cent increase from that low point cost about $14 per household.
The Biden administration is concerned that rising gas prices will refocus voters’ attention.
As a result, members of the Biden administration worked hard to persuade OPEC nations not to cut production, potentially sending prices higher ahead of the midterm elections. Those efforts were futile.