Even before Wednesday’s action by OPEC+ to cut oil production, US gas prices were on the rise. More price increases at the pump are probably ahead of us.
Gas prices rose nearly 3 cents a gallon in AAA’s daily reading Wednesday, to $3.83 a gallon, the biggest one-day gain in nearly four months.
The 99-day streak of price declines from mid-June to September 20 may be a distant memory, although today’s prices are still well below the June record of just over $5.03 a gallon. Gas prices have risen every day but one since then, and are now up 16 cents a gallon, or 4%, since bottoming out two weeks ago at $3.67 a gallon.
For the most part, price increases have been slow and gradual, but that may be about to change. OPEC+, which includes not only nations in the oil cartel but other major oil producers such as Russia, agreed on Wednesday to cut oil production by around 2 million barrels a day.
Oil futures rose about 2% on the news, and gasoline futures were also slightly higher following the OPEC move. Gasoline futures have gained about 20 cents a gallon since the drop in gas prices ended last month, suggesting possible higher prices ahead.
Oil and gasoline futures had fallen since mid-June amid growing concerns about a possible recession reducing demand for gasoline and oil, among other factors.
The recent increases have been caused by the unusually high number of U.S. refineries shut down for maintenance work, said Tom Kloza, global head of energy analysis for OPIS, which tracks gasoline prices for AAA. He said nearly 18% of the country’s refining capacity is now offline.
“A lot of it was postponed in the spring because they were making so much money,” he said. “The margin for error in US refining capacity is so small right now that you can’t lose any capacity without affecting prices.”
This is normally the time of year when gas prices fall as regulations requiring cleaner but more expensive gas to fight smog end in most of the country. The end of the summer driving season also reduces demand, which in turn pushes prices down.
Unfortunately, the refinery capacity squeeze “Means gas prices are not going to come down like I had thought,” said veteran oil analyst Andy Lipow. “They can actually do that drift upwards.”
Another factor that has helped reduce prices in recent months: the release of about 1 million barrels of oil a day from the nation’s strategic petroleum reserve, which is set to end on November 1.
“Nobody really knows what happens when the SPR sale closes,” Kloza said.
One thing that could lower prices: California, which usually keeps its rules requiring summer gasoline blends in place until 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 gasoline consumption in the U.S., 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 country.
“I don’t think we’ll see a lot of movement in national prices, although we do see California prices coming back into the fold,” Kloza said.
The drop in petrol prices has been an important check on rising total prices, as well as a support for consumption expenditure, as it means that more money goes into consumers’ pockets.
The typical American household buys about 90 gallons of gas a month, so the drop from $5.03 per gallon to a low of $3.67 per gallon late last month represented a savings of about $120 per month. By contrast, the 16-cent increase from the low point cost about $14 per household.
The concern of the Biden administration is that rising gas prices are bringing renewed focus in the minds of voters.
For that reason, members of the Biden administration pushed hard to convince OPEC nations not to cut production and possibly send prices higher ahead of a midterm vote. These attempts were unsuccessful.
— CNN’s Alex Marquardt, Natasha Bertrand and Phil Mattingly contributed to this report