Here’s the bad news first: Gas prices are on the rise in most of the US and could soon hit a national average of $4 a gallon for the first time in two months.
But the good news is prices might not stay there long, as they’re already falling in the parts of the country where prices are the highest.
The national average price Monday was $3.92 for a gallon of regular gas. That’s up 12 cents in just the last week and 24 cents since a 98-day price slide ended late last month. Part of that spike followed last week’s decision by OPEC+ to cut production by 2 million barrels a day in an effort to lift prices.
In the US in particular the high prices are in large part caused by reduced refining capacity. Several West Coast refineries have been offline because of accidents or maintenance. Nearly 18% of the nation’s refining capacity was offline at the time the OPEC cut was announced, Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA, told CNN Business last week.
Now those refineries are starting to come back online — and the price of gas in Western states is already falling.
AAA said prices in California, which accounts for nearly 10% of the nation’s gasoline usage, have fallen 5 cents in the last week, although the state still has by far the highest average prices in the nation at $6.33 a gallon. Prices are down 10 cents in Oregon, which has the third-highest prices behind California and Alaska, to $5.53 a gallon.
“East of Rockies prices have been rising, but west of Rockies the prices are already falling now that the refinery outages are ending,” said industry analyst Andy Lipow.
Lipow thinks the national average is already near a peak for the short term, as he expects the average is likely to top out between $3.95 to $4 a gallon later this week before it starts falling again. He said prices east of the Rockies are likely to follow western prices and start declining next week, and that by Halloween the national average could be down to $3.80 a gallon.
Currently roughly 25% of the nation’s 130,000 gas stations are selling regular gas for $4 or more, up from about 15% when the slide in prices ended last month. And 13 states — Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana, Michigan, Montana, Nevada, Utah, Oregon and Washington — have a statewide average above $4 a gallon right now.
The OPEC+ cut is already baked into current prices, Lipow said, so going forward, oil traders will be “looking ahead to demand.”
And demand is likely to be hurt by rising fears of a recession, both in the United States and around the globe. Recessions typically reduce demand significantly as fewer people have jobs to commute to, and consumers cut back on spending.
Gas is typically something that consumers keep buying in the same amount no matter the price — typically out of necessity — making it what economists refer to as an “inelastic” good.
But Lipow said that after the US average price hit a record $5.02 in mid-June, consumers cut back on driving: Consumption fell nearly 6% in July, the heart of the summer driving season.
This winter’s heating bills, which will also be much higher than a year ago, are likely to cause even more cutbacks, Lipow added.
As he notes, when homeowners set their thermostats, they don’t see the dollars and cents. “But at the gasoline pump, you do see the price, and you can decide to cut back on what you spend.”
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