Normally, prices at the gas pump drop in the dead of winter, as bad weather keeps Americans off the roads. But something unusual is happening this year: gasoline prices are skyrocketing.
The national average for regular gasoline jumped to $3.51 a gallon on Friday, according to AAA. Although that’s a far cry from last June’s record high of $5.02 a gallon, gasoline prices rose 12 cents last week and 41 cents last month.
In total, the national average has climbed 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 saw 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 rise in gas prices in winter catches the eyes of American drivers already struggling with high prices at the supermarket. It also threatens to undermine improvements from the inflation crisis that has rocked the economy much of the last year.
So why are gasoline prices rising?
It’s not because of demand, which remains low even at this time of year.
Instead, the problem is supply.
Extreme weather across much of the United States late last year caused a series of outages at refineries that produce the gasoline, jet fuel and diesel that keep the economy going.
For example, Colorado’s only refinery, the Suncor refinery outside of Denver, was disrupted by freezing temperatures. When the refinery attempted to restart, it suffered a fire and damaged equipment.
Suncor said the refinery — which Lipow Oil Associates says accounts for 17% of the Rocky Mountain region’s refining capacity — could be out of service for at least weeks.
This helps explain why gasoline prices in Colorado have jumped nearly $1 a gallon over the past month.
Elsewhere, refineries were also sidelined by extreme weather conditions. US refineries are operating at just 86% capacity, down from 90% in early December, according to Bespoke.
Beyond the refining issues, oil prices have risen, helping push pump prices up north.
Since dropping to $71.02 a barrel on Dec. 9, U.S. oil prices have jumped about 16%, to around $82.30 on Friday. This increase was partly driven by expectations of higher global demand as China eases its Covid-19 policies.
At the same time, oil markets are no longer receiving massive emergency oil injections from the Strategic Petroleum Reserve. The Biden administration has moved from releasing unprecedented amounts of oil from this stockpile to beginning the filling process.
The good news is that some of the refining issues may prove to be temporary, meaning supply should catch up with demand.
The bad news is that some experts are warning that gasoline prices could continue to rise anyway.
Andy Lipow, president of Lipow Oil Associates, expects the national average to hit $3.65 a gallon as spring approaches.
Patrick De Haan, head of oil analysis at GasBuddy, fears that the typical spring price rise could be prolonged.
“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.”
A return to $4 gas would be painful for motorists and could shake consumer confidence. Additionally, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow down its interest rate hike campaign.
The Cleveland Fed’s inflation nowcast model now points to a 0.6% month-over-month increase in the consumer price index for January. If confirmed, this would represent a significant acceleration from the 0.1% price decline between November and December.
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