The bad news first: gas prices are rising in much of the United States and may soon reach a national average of $4 per gallon for the first time in two months.
The good news is that prices may not stay there for long since they are already declining in the country’s most expensive areas.
On Monday, the national average price for a gallon of normal petrol was $3.92. This is a 12-cent increase in the previous week and a 24-cent increase after a 98-day price drop ended late last month. Part of the increase was due to OPEC+’s decision last week to limit output by 2 million barrels per day to raise prices.
High prices in the United States, particularly, are largely the result of local refining capacity. Several West Coast refineries have been shut down due to accidents or routine maintenance. According to Tom Kloza, global head of energy analysis for OPIS, which watches gas prices for AAA, about 18% of the country’s refining capacity was offline when the OPEC cut was announced last week.
Now that those refineries are reopening, gas prices in Western areas are beginning to plummet.
According to AAA, prices in California, which accounts for about 10% of the nation’s gasoline use, have dropped 5 cents in the previous week, but the state still has the highest average price in the country at $6.33 per gallon. Prices in Oregon, which has the third-highest prices behind California and Alaska, are down 10 cents to $5.53 per gallon.
“East of Rockies prices have been rising, but west of Rockies, the prices are already falling now that the refinery outages are ending,” said Andy Lipow.
Lipow believes the national average is already nearing a short-term peak, with the average likely to peak between $3.95 and $4 a gallon later this week before declining again. He predicted that prices east of the Rockies will follow western pricing and begin to fall next week, with the national average dropping to $3.80 a gallon by Halloween.
Nearly 25% of the country’s 130,000 gas stations sell standard petrol for $4 or more, up from around 15% when the price drop ended last month. In addition, 13 states — Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana, Michigan, Montana, Nevada, Utah, Oregon, and Washington — now have a statewide average of more than $4 a gallon.
According to Lipow, the OPEC+ cut is already included in current prices, so oil dealers will be “looking ahead to demand” in the future.
And mounting recessionary worries in the United States and worldwide are expected to dampen demand. Recessions often impact demand greatly since fewer people have jobs to commute to, and consumers cut back on spending.
Gas is frequently something that people continue to buy in the same amount regardless of price — usually out of need — making it what economists term an “inelastic” item.
However, Lipow claims that once the US average price reached a record $5.02 in mid-June, consumers reduced their driving: consumption plummeted roughly 6% in July, the peak of the summer driving season.
This winter’s heating expenditures, which will also be significantly higher than last year, are expected to force even further cuts, according to Lipow.
As he points out, homeowners aren’t thinking about dollars and cents when they set their thermostats. “But at the gasoline pump, you do see the price, and you can decide to cut back on what you spend.”