Memorial Day is right around the corner and will see even greater demand, according to JPMorgan, and higher prices at the pump.
- Why is gas so expensive?
- How high will gas prices go?
- What is the government doing to lower gas prices?
- How can drivers save at the gas station?
Since Friday, the national average for a gallon of gas has been sitting at around $4.59, according to AAA. That’s about a quarter more than the previous all-time high of $4.33, reached on March 11, and a 50-cent jump from just a month ago. Currently, all 50 states are sitting above $4 per gallon.
AAA spokesperson Andrew Gross placed the blame on the high cost of crude oil, which has been hovering near $110 a barrel. “Even the annual seasonal demand dip for gasoline during the lull between spring break and Memorial Day, which would normally help lower prices, is having no effect this year,” Gross said in a statement.
As we head into summer, analysts predict even higher prices at the pump: According to a report by JPMorgan, the nationwide average could surpass $6.20 a gallon by August. Currently, only California has crossed the $6 threshold, with the state average at $6.06.
Here’s what you need to know about gasoline prices, including how high they could get, what the White House is doing to turn it around and how you can save money on gas.
Why is gas so expensive?
The price of gas is inextricably linked to the cost of crude oil, from which it’s refined from. Every $10 increase in the cost of a barrel of crude adds almost a quarter to the price of a gallon at the pump.
As part of ongoing sanctions over the invasion of Ukraine, President Joe Biden announced a ban on Russian oil imports. Even though the US doesn’t import much crude from Russia, oil is traded on a global market, and any ripple affects prices all over the world.
When the European Union indicated last week it was proposing cutting off Russian oil, crude prices spiked and West Texas Intermediate, one of the main global oil benchmarks, rocketed past $110 a barrel.
Los Angeles County saw the average price of self-serve regular gasoline pass $6 a gallon. Zeng Hui/Getty Images
But Troy Vincent, senior market analyst at energy analysis firm DTN, says the war in Ukraine isn’t the only factor causing inflated fuel prices: Demand for gas plummeted during the pandemic, causing oil producers to put the brakes on production.
Even though demand is nearing pre-pandemic levels, producers are still gun-shy about increasing production. In April, OPEC fell short of its targeted production increase by 2.7 million barrels a day.
“We’ve had a supply-and-demand imbalance for a while,” Vincent told CNET. “And it will remain, regardless of whether this conflict goes away,” he said.
In addition, gas companies have switched to the more expensive summer blend of gasoline, which can add between seven to ten cents per gallon. In the warmer months, gasoline is reformulated to prevent excess evaporation caused by higher temperatures outside.
How high will gas prices go?
Though the current $4.59 a gallon is a record dollar amount, adjusted for inflation it’s still below the 2008 peak of $4.14. But experts don’t believe we’ve seen the end of rising prices at the pump.
“This supply/demand dynamic, combined with volatile crude prices, will likely continue to keep upward pressure on pump prices,” AAA said in a statement Thursday.
Matt Smith, a data analyst with Kpler, told USA Today that an average of $5 per gallon is “by no means beyond the realms of possibility.”
“Gasoline prices will remain high as long as oil prices remain in the triple digits,” Smith said. “It’s going to hit the pocketbook far harder.”
With expectations of “strong driving demand” throughout the summer driving season from Memorial Day to Labor Day, JPMorgan analysts predicted the price could pass $6 a gallon before fall. The price per gallon could jump another 37% by August to a $6.20 per gallon national average, Natasha Kaneva, JPMorgan’s head of commodities research, said in a memo Tuesday, Insider reported.
Refineries typically increase production in spring in expectation of higher need in summer, Kaneva said. But gasoline inventories have actually fallen to their lowest seasonal levels since 2019, in part because gas companies underestimated how quickly demand would bounce back from pandemic lows.
This week, Los Angeles joined San Francisco in breaking the $6 a gallon barrier. And for the first time, the average cost for a gallon surpassed $4 in all 50 states.
What is the government doing to lower gas prices?
In late March, Biden announced he was releasing a million barrels of oil a day from the US Strategic Petroleum Reserve over the next six months. According to the White House, the unprecedented withdrawal could lower gasoline prices between 10 to 35 cents a gallon.
But insiders say it probably won’t help much in the long run.
“It will lower the oil price a little and encourage more demand,” Scott Sheffield, chief executive of Texas oil company Pioneer Natural Resources, told The New York Times. “But it is still a Band-Aid on a significant shortfall of supply.”
In April, the Environmental Protection Agency allowed for year-round sales of cheaper E15 gasoline, which contains a 15% ethanol blend. The impact will be modest as only about 2,500 of the more than 100,000 gas stations nationwide sell the higher-ethanol blend.
The White House continues to pressure US oil companies to increase drilling and production. Criticizing energy concerns for “sitting on” more than 12 million acres of federal land and 9,000 approved production permits, the administration would like companies to face fines if they leave wells leased from public lands unused.
In May, the Department of the Interior canceled the sale of a high-profile oil and gas lease that would have opened 1 million acres in Alaska to drilling, citing a “lack of industry interest in leasing in the area,” according to CBS News. The department also stopped two potential leases in the Gulf of Mexico because of what it called “conflicting court rulings that impacted work on these proposed lease sales.”
The government is also looking at getting energy products from other sources: The Biden administration has been working at improving diplomatic relations with Venezuela, which has been banned from selling oil to the US since 2018, and is negotiating another nuclear nonproliferation treaty with Iran, which would bring Iranian oil back onto the market.
There is also a bill in Congress that would pause the federal fuel tax, though it faces stiff opposition. Individually, Connecticut, Maryland and Georgia have suspended state gas taxes to help consumers, and at least 20 other states are considering similar moves.
How can drivers save at the gas station?
There’s not much we can do to change the price of gas, but drivers can cut down on unessential trips and shop around for the best price, even crossing state lines if it’s not inconvenient.
Apps like Gas Guru scan for the best gas prices in your region. Others, like FuelLog, track your car’s gas mileage and can help determine if it’s getting decent fuel economy. In addition, many gas station chains have loyalty programs, and credit cards have rewards programs that give cash back for gas purchases.
DTN’s Vincent advises against hoarding gas or other extreme measures but encourages budgeting more for gas. High energy prices have been a major contributor to inflation for a while, he said, and won’t be going away immediately.
“When the cost of crude rises, prices at the pump tend to reflect it very quickly,” he said. “But gas prices tend to linger higher longer even when crude falls.”