Gasoline Prices Will Stay High

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Don’t look now, but gasoline prices are on the rise again. The national average price of regular unleaded has crept up to $4.16 per gallon, a four-cent increase from a week ago. Drivers who had hoped that the brief decline they saw earlier this spring would continue are going to be disappointed. There’s a good chance that the national average will surpass the $4.33 record high set in March, shortly after Russia’s invasion of Ukraine sent oil prices soaring. The summer travel season is approaching, and retail gas prices typically climb in the weeks leading up to Memorial Day. This year is likely to see that pattern play out as COVID-weary travelers head for the beach, the mountains or other destinations they’ve been missing. Diesel prices are also up sharply. The national average cost of diesel hit $5.18 per gallon today, vs. $5.07 a week ago: a new all-time high.

Crude oil prices continue their wild ride. Currently, they’re in the “up” part of that ride, with benchmark West Texas Intermediate climbing to $107 per barrel this week. That’s well short of the $130+ reached in the days after Russia invaded Ukraine and triggered sanctions that are limiting Moscow’s ability to export oil. But it’s well above the $93 that WTI fell to a couple of weeks ago, when investors worried that COVID-19 lockdowns in China could sap oil demand in the world’s largest oil importer. This intense volatility is likely to continue, but we expect WTI to stay above $100 for now, which means continued high fuel prices for consumers and businesses.

Don’t overlook the rally in natural gas prices, either. The benchmark gas futures contract has quietly climbed to its highest level in years, aside from a handful of sudden price spikes caused by severe winter storms. This time, there’s no bad weather to blame, just extremely heavy worldwide demand for gas. Europe in particular is buying as much liquefied U.S. gas as it can, in order to reduce its reliance on Russian pipeline imports. So, at a time when U.S. demand is low and surplus production would normally fill up storage facilities here, much of that excess gas is being shipped overseas. As a result, gas prices are trading at a bit more than $7 per million British thermal units, vs. a winter average of around $4. We expect exports to continue to ramp up, keeping domestic gas supplies under strain. That could result in even higher price surges this summer, if heat waves lead to heavy electricity demand, and force gas-fired power plants to run extra hard. Consumers will be feeling the effects of expensive natural gas on their electric bills this summer, and probably on their heating bills next winter.