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Why gas prices are rising this month





New York
CNN

Normally, prices at the gas pump are lower during the winter months, as inclement weather keeps Americans off the roads. But something unusual is happening this year: Gas prices are shooting higher.

The national average for regular gas jumped to $3.51 a gallon on Friday, according to AAA. While far from the record high of $5.02 a gallon last June, gas prices have increased 12 cents in the past week and 41 cents in the past month.

Overall, the national average has risen by more than 9% since the end of last year – the biggest increase to start a year since 2009, according to Bespoke Investment Group.

AAA says some states experienced much larger gains in the past month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).

The unusual winter jump in petrol prices is drawing the eye of American drivers who are already struggling with high prices at the supermarket. It also threatens to undermine improvements in the inflationary crisis that gripped the economy for much of last year.

So why are gas prices jumping?

That’s not because of demand, which remains weak even at this time of year.

Instead, the problem is the supply.

The extreme weather in much of the US near the end of last year caused a series of shutdowns at the refineries that produce the gasoline, jet fuel and diesel fuel that keep the economy going.

For example, Colorado’s only refinery, the Suncor refinery outside Denver, was disrupted by freezing temperatures. When the refinery tried to restart, there was a fire and equipment was damaged.

Suncor has indicated that the refinery — which Lipow Oil Associates says represents 17% of the Rocky Mountain region’s refining capacity — could be offline for at least weeks.

That helps explain why gas prices in Colorado have risen nearly $1 per gallon in the past month.

Refineries elsewhere have also been sidelined by extreme weather. US refineries are operating at just 86% of capacity, down from mid-90% in early December, according to Bespoke.

In addition to the refinery problems, oil prices have crept higher, which is helping to drive prices at the pump northwards.

Since falling to $71.02 a barrel on December 9, US oil prices have jumped about 16%, to around $82.30 on Friday. This increase is partly driven by expectations of higher worldwide demand as China relaxes its Covid-19 policies.

At the same time, the oil markets no longer receive massive injections of emergency oil from the Strategic Petroleum Reserve. The Biden administration has gone from releasing unprecedented amounts of oil from storage to beginning the process of refilling it.

The good news is that some of the refinery problems may turn out to be temporary, meaning that supply should catch up with demand.

The bad news is that some experts warn that gas prices may continue to go higher regardless.

Andy Lipow, president of Lipow Oil Associates, expects the national average to reach $3.65 a gallon by spring.

Patrick De Haan, head of petroleum analysis at GasBuddy, worries that the typical spring price jump will be dragged forward.

“Instead of $4 a gallon happening in May, it could happen as early as March,” De Haan told CNN. “There is more upside risk than downside risk.”

A return to $4 gas would be painful for drivers and could undermine consumer confidence. Also, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow its rate hike campaign.

The Cleveland Fed’s Inflation Nowcasting model now points to a 0.6% month-over-month increase in the CPI for January. If true, it would represent a significant acceleration compared to the 0.1% drop in prices between November and December.



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