Pain at the pump will get worse before it gets better.
That’s according to a new GasBuddy forecast that predicts the national average will rise to $3.41 a gallon in 2022, up from $3.02 a gallon this year.
The GasBuddy forecast, shared exclusively with CNN, projects prices at the pump will peak nationally at a monthly average of $3.79 in May, before finally retreating below current levels by late 2022.
“We could see a national average that flirts with, or in a worst-case scenario, potentially exceeds $4 a gallon,” said Patrick De Haan, head of petroleum analysis at GasBuddy, an app that tracks fuel prices, demand and outages.
That would amplify the inflationary pressures hitting American families grappling with the biggest price spikes in nearly 40 years. And it would add to the White House’s political headaches.
The national average at the pump fell to $3.29 a gallon on Monday, according to AAA. That’s down by 13 cents from the peak of $3.42 on November 8.
The US Energy Information Administration said on December 7 the national average will likely drop to $3.01 a gallon in January and fall to $2.88 for 2022. Citigroup likewise predicted a “radical drop” in energy prices, including a potential bear market for oil next year.
‘The economy is hot.’
GasBuddy is basing its forecast on several major themes, including demand that continues to recover from Covid much faster than supply.
“The economy is hot. Demand has come roaring back. But supply is still catching up after getting cut greatly in 2020,” De Haan said.
OPEC and its allies enacted unprecedented production cuts in the spring of 2020 after oil prices crashed below zero for the first time ever. US oil companies also slashed output.
Despite high prices, neither OPEC+ nor US oil producers have gotten back to pre-Covid production.
Refinery shutdowns are a problem, too
The other major factor is that key refineries have been sidelined in recent years.
Low prices when Covid erupted forced the closure of some refineries, which churn out gasoline, jet fuel and diesel that the economy relies on.
Another refinery in Louisiana was damaged by Hurricane Ida in August, prompting Phillips 66 to convert the facility into an oil terminal instead.
And then last week one of America’s largest refineries, the ExxonMobil plant in Baytown, Texas, was rocked by an explosion that injured at least four workers.
Tom Kloza, chief oil analyst for the Oil Price Information Service, previously told CNN the Baytown refinery accident could weigh on already-constrained gasoline supply. Kloza said he would not be surprised to see average prices rise to $4 a gallon in much of the country this spring and summer.
Refinery capacity fell to a six-year low in 2021, according to the EIA. De Haan, the GasBuddy analyst, said the demise of multiple refineries has contributed to the higher price outlook.
“There is less breathing room as a result of those refinery shutdowns,” he said.
‘Anything could change’
The good news is GasBuddy does not anticipate the spring surge in gas prices will last.
The forecast calls for gas prices to stay elevated at $3.78 a gallon in June and $3.57 in July but then falling sharply as demand cools off. By December, GasBuddy expects gas prices will average $3.01 a gallon nationally, which is below current levels.
Of course, no one can say with certainty where gas prices will go next. Covid has made it very difficult to accurately forecast much about today’s economy.
Although GasBuddy’s prior forecasts were reasonably close to where prices ended up, the company did not see the 2021 surge coming.
De Haan concedes there is a lot of uncertainty today, especially on the Covid front.
“Anything could change,” he said. “Tomorrow there could be a ridiculous variant and prices could plummet.”
Biden’s historic intervention
Nonetheless, the specter of $4-a-gallon gas will only intensify the political debate around high gas prices.
Republicans have sought to blame President Joe Biden for the energy sticker shock, pointing to his ambitious climate agenda.
Biden stepped into the fray in November by forming a coalition of energy consuming nations to intervene in the oil market. The White House announced the largest-ever release of barrels from the Strategic Petroleum Reserve and persuaded China, India, South Korea and other nations to join in.
Rumors of an intervention drove oil prices about 10% lower prior to the SPR announcement, though experts doubted the move would provide lasting relief to energy prices. And then Omicron emerged, briefly sending oil prices crashing, before they rebounded somewhat.
Emilie Simons, a White House spokesperson, pointed out that 21 states have average gas prices below $3.15 a gallon, putting them below the 20-year real average.
“While current price levels aren’t unprecedented,” Simons told CNN in an email, “the President believes that they are too high especially given that we are emerging from a once-in-a-century pandemic.”
The Keystone Pipeline debate
Biden’s critics frequently point to his Day One decision to rescind the permit for the Keystone XL Pipeline.
But this pipeline wasn’t even scheduled to begin carrying oil until 2023. Even the American Petroleum Institute has conceded Keystone isn’t the primary factor behind today’s high prices.
“Americans who believe that have been fooled into thinking that a pipeline somehow produces oil. They don’t. They merely carry oil,” De Haan said.
In any case, about half of US oil pipeline space is unused after years of rapid expansion.
US pipeline capacity is sitting around 50%, compared with a range of 60% to 70% before Covid, according to Wood Mackenzie.
“We’d have seen a surge in gas prices,” he said, “no matter who was in the Oval Office.”