Gasoline could hit $5 a gallon this summer, causing more pain for consumers

Current gasoline prices are shown in Garden Grove, California, March 29, 2022.

Mike Blake | Reuters

Gasoline prices are an alternative ticket to consumers’ wallets this summer, as supply shortages and uncertainty in Ukraine could drive up fuel costs sharply.

Gasoline prices are up around $5, and look like they’ll stay high even after the peak driving season in July. Already, Yardeni research projects spend households amount Equivalent to 5000 dollars a year on gasoline compared to $2,800 a year ago.

In a normal summer, gasoline prices rise in May and then peak in the middle of the month. The summer driving season kicks off at the end of the month on Memorial Day weekend, with the most drivers hitting the roads in July—just after the Fourth of July holiday.

And with inflation running at more than 8%, drivers are unlikely to get a breather this year. After falling in April, the price of gasoline this month rose to record levels as oil prices rose. Gasoline experts see prices rising to $5 or more per gallon, and JPMorgan analysts forecast a national average of $6.20 per gallon in August.

The national average for unleaded gasoline was at a new high of $4.56 a gallon on Wednesday, According to AAA. That’s 4 cents above Tuesday’s price and 16 percent a gallon just last week. At this time last year, the price was $3.04 per gallon.

“Goal struts are constantly moving,” said Patrick DeHaan, head of petroleum analysis at GasBuddy. “I think we probably have somewhere near one in three of the national average of $5.” “We’re definitely heading for a little higher in the short term, but we’re still waiting to see if the European Union imposes sanctions on Russian oil. Talk about it. That might boost momentum to get closer to $5.”

For the first time ever, the average price of unleaded gasoline was $4 per gallon or higher in all 50 states this week, according to AAA data. Because of taxes and other factors, prices vary widely — with California averaging $6.05 a gallon, and Florida averaging $4.50.

Tom Cluza, head of global energy research at OPIS, said he expects the average price to rise north by $5 nationally through peak driving. He also expects states and the federal government to drop taxes on gasoline to soften the blow on consumers.

“I think gasoline is a special thing,” Kloza said. “The Biden administration is in a state of utter limbo trying to figure out how to reduce the numbers that are still higher.” “I think we could see the $5 index, and I don’t think we’re getting past that very much. You really have to destroy demand when you go over those numbers.”

Kloza said he expects consumers to cut back on driving if gasoline becomes too expensive, and that would bring the price down somewhat. Analysts say the economic slowdown may also slow price gains.

In the futures market on Wednesday, the RBOB gasoline contract fell 5.5% to $3.72 a gallon after Target’s quarterly results raised consumer health concerns. This follows Walmart’s profit loss on Tuesday.

It’s a reminder of how much air is at this price,” said John Kilduff, partner of Again Capital. “There is concern about the economy and there are concerns about demand. Those targeted gains were very informative about how much the consumer is under pressure. Although we have strong demand, there are concerns that we are not going to stay up.”

Target CEO Brian Cornell blamed the price of gasoline As a factor affecting consumers. In his stores, customers put off buying things like TVs and appliances and spend more on luggage to travel. But they also spend more on food, drinks, and household items.

According to Yardini research, inflation-adjusted consumer incomes are barely growing. On the one hand, it collected a lot of savings; On the other hand, they charge higher fees for credit cards.

“No wonder the Consumer Confidence Index is so depressed,” Yardeni said in a note. “The surprising thing is that retail sales were very strong during April and May.” April retail sales It rose at an annualized pace of 8.2%.

Wildcards for gas prices

The price of gasoline is affected the most by the price of oil, and the outlook for crude oil looks less than certain.

Prior to the invasion of Ukraine, Russia was exporting 5 million barrels of oil per day to the world market, along with more than 2.5 million barrels of refined products. Sanctions imposed by the United States and its allies have limited Moscow’s ability to sell its crude, and this has led to tight supplies of everything from diesel to jet fuel.

Now, the EU’s effort to end Russian oil purchases entirely is just one base card for the price of fuel, which is also in short supply due to reduced refining capacity.

“I’m hit by two issues. There’s a lack of refining capacity and a lack of investment in the refinery,” said Helima Croft, head of global commodity strategy at RBC. “Now you have this issue of war. We don’t know how unavailable Russian oil will become. We know it’s unpopular… We don’t know what overall European sanctions will be like.”

Croft said it was not clear if there would be level two sanctions against countries such as India and China that continue to buy Russian crude. “We don’t know if Russia will play the ball with an orderly defeat on the part of Europe. We don’t know if they want to move forward by cutting off Europe,” she said.

refining risks

US drivers used about 9 million barrels of gasoline per day last week. That’s down from 9.2 million barrels last year but up from 8.7 million the previous week, according to the Energy Information Administration.

This comes at a time when US refining capacity has shrunk in aggregate by nearly one million barrels over the past several years. The Philadelphia Energy Solutions refinery explosion in 2019 brought that refinery to a halt, resulting in a loss of 335,000 barrels per day at just one facility.

Analysts say that some refineries may switch production of gasoline to diesel due to the scarcity of high truck fuel prices, but this will be in limited quantities. Diesel is in short supply, and the price per gallon has jumped to $5.57 per gallon, according to AAA.

“Physical markets are very tight this summer and on the back of strong demand there may be some hot spots in terms of availability,” DeHaan said. “It’s all about refining capacity. We don’t have enough of it…Pipelines, refineries – if there’s any infrastructure down this summer – it could lead to limited disruptions.”

It would also change the outlook of nearly $5 a gallon from the national average to a price that could be much higher.

“I think you can get into the world of horrific numbers, but maybe you need a hurricane. I think flights start canceling when hotels charge $400, when airline tickets are $700 instead of $200, and when it costs $100 to fill in,” Klousa said.

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