Typically, prices drop at the gas pump during the winter as foul weather keeps Americans off the roads. But something extraordinary is happening this year: gas prices are skyrocketing.
National average for normal gas It jumped to $3.51 a gallon on Friday, according to AAA. Although this is a far cry from the record $5.02 a gallon set last June, gas prices were up 12 cents last week and 41 cents last month.
Finally, the national average is up more than 9% since the end of last year — the largest year-on-year increase since 2009, according to Bespoke Investment Group.
AAA says some states had much larger gains over the past month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).
The unusual jump in fuel prices in the winter season is catching the attention of American drivers who are already grappling with soaring prices at the supermarket. It also threatens to undermine improvements in the inflationary crisis that gripped the economy for most of last year.
So, why are gas prices jumping?
Not because demand is still weak, even at this time of year.
Rather, the problem is the display.
Extreme weather across much of the United States towards the end of last year caused a series of outages at refineries that produce the gasoline, jet fuel and diesel that keep the economy booming.
For example, Colorado’s only refinery, the Suncor refinery outside Denver, has failed due to freezing temperatures. When the refinery attempted to restart, it suffered 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 — may be offline for at least weeks.
That helps explain why gas prices in Colorado have risen by about $1 a gallon over the past month.
Refineries elsewhere have also been sidelined by extreme weather. US refineries are operating at just 86% of capacity, down from the 90% range in mid-December, according to Custom Designer.
Beyond the refinery troubles, oil prices have soared, which has helped push prices at the pump north.
Since dropping to $71.02 a barrel on December 9, US oil prices have jumped about 16% to around $82.30 on Friday. This increase was driven in part by expectations of higher global demand as China relaxes its Covid-19 policies.
At the same time, oil markets are no longer receiving massive injections of emergency oil from the Strategic Petroleum Reserve. The Biden administration has shifted from releasing unprecedented amounts of oil from this stockpile to starting the process of refilling it.
The good news is that some refinery issues may be temporary, which means that supply must catch up with demand.
The bad news is that some experts warn that gas prices may continue to rise anyway.
Andy Lipow, president of Lipow Oil Associates, expects the national average to reach $3.65 a gallon come spring.
Patrick De Haan, Head of Petroleum Analysis at GasBuddy, worries about Typical spring jump in prices will be pulled forward.
“Instead of $4 a gallon in May, it could happen as early as March,” de Haan told CNN. “There are more upside risks than downside risks.”
The return of $4 in gas would be painful for drivers and could erode consumer confidence. Moreover, the pain at the pump would complicate the inflation picture while the Fed debates whether to slow down its campaign to raise interest rates.
The Cleveland Fed’s inflation nowcast model is projecting a 0.6% month-over-month increase in the consumer price index for January. If true, it would represent a significant acceleration compared to the 0.1% decline in prices between November and December.
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