Normally, prices at the gas pump drift lower during the dead of winter as lousy weather keeps Americans off the roads. But something unusual is happening this year: Gas prices are rocketing higher.
The national average for regular gas jumped to $3.51 a gallon on Friday, according to AAA. Although that’s a far cry from the record of $5.02 a gallon last June, gas prices have increased by 12 cents in the past week and 41 cents in the past month.
All told, the national average has climbed 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 have experienced much bigger gains over the past month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).
The unusual wintertime jump in gas price is drawing eye rolls from American drivers already grappling with high prices at the supermarket. It also threatens to undermine improvements in the inflation crisis that gripped the economy much of last year.
So, why are gas prices jumping?
It’s not because of demand, which remains weak, even for this time of the year.
Instead, the problem is supply.
The extreme weather in much of the United States near the end of last year caused a series of outages at the refineries that produce the gasoline, jet fuel and diesel that keep the economy humming.
For example, Colorado’s sole refinery, the Suncor refinery outside of Denver, was disrupted by freezing temperatures. When the refinery tried to restart, it suffered a fire and equipment got damaged.
Suncor has indicated that refinery – which Lipow Oil Associates says represents 17% of the Rocky Mountain region’s refinery capacity – could be offline for at least weeks.
That helps explain why gas prices in Colorado have surged by nearly $1 a gallon over the past month.
Refineries elsewhere have been sidelined by extreme weather as well. US refineries are operating at just 86% of capacity, down from the mid-90% range at the start of December, according to Bespoke.
Oil prices bounce off lows
Beyond the refinery problems, oil prices have crept higher, helping to drive prices at the pump northward.
Since tumbling to $71.02 a barrel on December 9, US oil prices have jumped about 16%, to around $82.30 on Friday. That increase has been driven in part by expectations of higher worldwide demand as China relaxes its Covid-19 policies.
At the same time, the 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 that stockpile to beginning the process of refilling it.
The good news is that some of the refinery problems may prove to be temporary, meaning supply should catch up with demand.
The bad news is some experts are warning gas prices may keep going higher anyway.
GasBuddy warns of $4 gas by March
Andy Lipow, president of Lipow Oil Associates, expects the national average will hit $3.65 a gallon heading into the spring.
Patrick De Haan, head of petroleum analysis at GasBuddy, worries the typical springtime jump in prices will be pulled 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 of $4 gas would be painful to drivers and could dent consumer confidence. Moreover, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow its interest rate hiking campaign.
The Cleveland Fed’s Inflation Nowcasting model is now pointing to a 0.6% month-over-month increase for the Consumer Price Index for January. If that holds true, it would represent a significant acceleration compared with the 0.1% drop in prices between November and December.