Gas price inflation is back.
For the first time since late last year, prices at the pump are now higher on a year-over-year basis. It’s a trend that industry experts expect to continue in the coming weeks and months, especially if Russian oil facilities continue to get hit by drone attacks.
This is an unwanted development for consumers heading into the spring. It’s also a problem for White House and Federal Reserve officials hoping to declare victory over inflation.
The recent jump in gas prices is already causing headaches on the inflation front. Gas was the main culprit behind last week’s hotter-than-expected consumer price index and a disappointing wholesale inflation report.
All of this is casting doubt on when the Fed will be able to start cutting interest rates. Hopes for a March rate cut have faded, and investors are now betting on June or July.
“Gas prices are going to keep going up,” said Andy Lipow, president of Lipow Oil Associates. “This is going to cost the consumer more money. And that of course is not good for the administration.”
The national average price for regular gas climbed to $3.47 a gallon on Monday, according to AAA. That’s up from $3.45 a year ago and the highest price since Halloween.
The last time gas prices were up on a year-over-year basis was late December 2023, according to AAA.
The highest recorded price for unleaded gas was in June of 2022, when a gallon averaged $5.02, according to AAA.
The national average has jumped by seven cents in the past week and 19 cents over the past month. Gas prices are up by 40 cents since mid-January.
Much of this late winter increase in prices is normal.
It happens every year as refineries shut down for maintenance and switch over to more expensive summer fuel. Demand for gas also increases as people drive more in the warmer weather and longer days.
But refinery outages caused by extreme cold this winter have also contributed to the gas price jump.
Another problem: Russian energy infrastructure has been targeted in the Russia-Ukraine war.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, told CNN that recent drone attacks on oil refineries deep inside Russia are boosting gasoline and oil prices.
“It appears pretty clear that Ukrainians have discovered the best way to attack Vladimir Putin is to attack him in his wallet. That means knocking out refineries,” Kloza said. “It’s a wildcard we’ve never had to deal with before.”
Kloza noted there is growing speculation that Russia will need to take the unprecedented step of importing gasoline to meet internal demand for fuel.
“If they continue to target petroleum infrastructure, you could see global price rise higher,” said Kloza.
And the concerns about Russia’s energy facilities is on top of the Houthi attacks on vessels in the Red Sea. Those attacks have forced some oil tankers to be rerouted away from the region, adding time and costs to the voyage.
US oil prices climbed nearly 1% to $81.70 a barrel on Monday, leaving crude 20% more expensive than this point last year.
Meanwhile, OPEC+, the producer group led by Saudi Arabia and Russia, continues to restrain supply in a bid to boost prices. OPEC+ recently agreed to keep its production cuts in place through June.
Kloza noted that one problem for the White House is that some battleground states are at risk of seeing significantly higher gas prices.
Drivers in Michigan, for instance, are now paying an average of $3.65 a gallon, nearly 20 cents higher than at this point last year, according to AAA.
“People have this visceral reaction to higher gas prices and they look to fix blame,” said Kloza. “But this is all about OPEC+ and drones, not the Biden administration.”
Still, the good news is that analysts are not forecasting a spike in gas prices like the one that drove the national average above $5 a gallon in mid-2022.
The United States is pumping more oil than any country in history and OPEC+ has the firepower to add supply, if needed.
Unless there’s a major hurricane that strikes US Gulf Coast refineries, Kloza does not expect gas prices to hit $4 a gallon this year.
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