Even before OPEC+’s move on Wednesday to cut oil production, US gas prices were on the way up. More price hikes at the pump are likely in the offing.
Gasoline prices rose nearly 3 cents a gallon in the AAA’s daily reading on Wednesday, to $3.83 a gallon, the largest one-day increase in nearly four months.
The 99-day run of price drops from mid-June to September 20 may become a distant memory, even if today’s prices are still well below June’s record of just over $5.03 a gallon. Gas prices have risen every day except for one day since then and are now up 16 cents a gallon or 4% since bottoming out at $3.67 a gallon two weeks ago.
The price increases have been slow and incremental for the most part, but that could change. OPEC+, which includes not only countries in the oil cartel but other major oil producers such as Russia, agreed on Wednesday to cut oil production by about 2 million barrels per day.
Oil futures were up about 2% on the news and gasoline futures were also slightly higher on the OPEC move. Gasoline futures are up about 20 cents a gallon since the drop in gasoline prices ended last month, pointing to possible higher prices going forward.
Oil and gasoline futures have fallen since mid-June on mounting concerns about a potential recession, which would reduce demand for gasoline and oil.
The recent increases have been driven by the unusually high number of US refineries shut down for maintenance, said Tom Kloza, global head of energy analysis at OPIS, which tracks AAA gasoline prices. He said nearly 18% of the country’s refining capacity is now offline.
“A lot of it was postponed in the spring because they made so much money,” he said. “The margin of error in refining capacity in the US is so small right now that you can’t lose capacity without impacting prices.”
This is normally the time of year when gas prices fall as most of the country ends regulations requiring cleaner but more expensive gas to fight smog. The end of the summer driving season also reduces demand, which in turn pushes prices down.
Unfortunately, the refinery capacity shortage “Means gas prices won’t fall the way I imagined,” said veteran oil analyst Andy Lipow. “Actually, maybe they would float up.”
Another factor that has helped drive prices down in recent months: the release of about 1 million barrels of oil per day from the country’s strategic petroleum reserve, which is expected to expire on Nov. 1.
“Nobody really knows what happens when SPR sales stop,” Kloza says.
One thing that could drive prices down: California, which typically enforces its rules requiring the summer of a blend of gasoline through November, lifted the requirement early last week. That could lower the national average price, even if it only affects gasoline in California. The state accounts for about 9% of U.S. gas mileage, so the change could affect the national average even if prices don’t move elsewhere. The average price there is $5.52 per gallon, by far the highest in the nation.
“I don’t think we’ll see any big moves in national prices. even if we see prices in California returning to the pack,” Kloza said.
The fall in petrol prices has been a major control of rising general prices, as well as a support for consumer spending, as it means more money ends up in consumers’ pockets.
The typical American household buys about 90 gallons of gas a month, so the drop from $5.03 a gallon to a low of $3.67 a gallon late last month meant savings of about $120 a month. By contrast, the 16-cent increase from that low cost about $14 per household.
The Biden administration’s concern is that rising gas prices are bringing a renewed focus to voters’ minds.
For that reason, members of the Biden administration went to great lengths to convince OPEC countries not to cut production and possibly send higher prices ahead of a mid-term vote. Those attempts were unsuccessful.
– Alex Marquardt, Natasha Bertrand and Phil Mattingly of CNN contributed to this report
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