After a slow but steady decline, the national average price for regular gasoline bottomed out at $4.07 per gallon last week, according to AAA. Since then, the national average has risen four straight days, climbing to $4.10 a gallon on Tuesday.
This is the first increase in gasoline prices since early March, when war-related unrest in energy markets reached a crescendo. And it dashed hopes that the national average would drop to $4 a gallon, easing pressure on inflation that is unfolding at the fastest pace in 40 years.
“It’s not going down anymore,” Andy Lipow, president of consulting firm Lipow Oil, told CNN. “This is terrible news for inflation.”
Until this week, Lipow predicted a return to $4 gas. He has since dropped that call amid renewed concerns over Russia’s oil supply and an increase in gasoline futures, a major driver of wholesale and retail prices.
“We’re just not going down to $4 at this point,” Lipow said.
However, the outlook is very uncertain. Oil prices remain volatile and subject to sudden movements, both up and down.
After peaking last week, oil fell sharply on Tuesday on demand concerns highlighted by continued Covid lockdowns in China and the International Monetary Fund cutting its 2022 global growth outlook. .
“The market is always scary”
The national regular gas average hit a nominal record high of $4.33 a gallon last month as war in Ukraine raised fears of major supply disruptions from Russia, the world’s largest oil exporter. (Gasoline prices are expected to rise above $5.30 a gallon to surpass their 2008 highs on an inflation-adjusted basis.)
“I wouldn’t bet on DraftKings that $4.33 will be the highest price over the next few months. We could go higher,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. “The market is always scary.”
The decline in pump prices over the past six weeks has been driven by a variety of factors, including a slump in oil prices, China’s Covid lockdowns, recession fears and the unprecedented release of oil from oil stocks. emergency by the United States and its allies.
The good news is that federal government analysts still see gasoline prices falling.
The Energy Information Administration expects retail gasoline prices to average $3.84 a gallon during this summer’s driving season. While that’s well above last summer’s average of $3.06 a gallon, the EIA notes that inflation-adjusted gas prices would still be below 2014 levels, let alone peak. from 2008 to the start of the Great Recession.
Supply interruptions in Russia compared to demand in China
Still, oil prices remain elevated and have been rising over the past week, albeit in a volatile fashion.
Renewed fears that Europe is sanctioning Russian energy sent U.S. oil prices up 9% last week to $106.95 a barrel. Crude rose another 1% on Monday to $108.21 a barrel after unrest in Libya knocked the OPEC country’s largest oilfield offline. Oil, however, fell more than 4% on Tuesday to $103.40 a barrel in the latest trades.
Of note, oil prices remain above $100 a barrel despite nearly 400 million people in China remaining in lockdown, casting a shadow over demand from one of the world’s largest energy consumers. .
“They have more people in lockdown than we have men, women and children in the United States and Canada,” Kloza said.
Not to mention the staggering 180 million barrels of oil the Biden administration pledged to release from the Strategic Petroleum Reserve at the end of March. Additionally, the International Energy Agency said it would release about 60 million additional barrels of oil and petroleum products.
“It shows you the seriousness of the problem of finding alternatives to Russian oil. They just aren’t there,” Lipow said.
OPEC cannot replace Russia
Last week, OPEC cut its forecast for Russian oil production in 2022 by 530,000 barrels due to the war in Ukraine and sanctions imposed on Moscow. OPEC raised its projection for US production this year, but by only 260,000 barrels per day.
Alarm bells ringing in the energy market after the OPEC chief warned European Union officials last week that current and future sanctions and other voluntary actions against Russia could lead to the loss of 7 million barrels a day of Russian oil, Reuters reported.
“Given the current demand outlook, it would be almost impossible to replace a loss of volumes of this magnitude,” OPEC Secretary General Mohammad Barkindo said, according to a copy of his speech seen by Reuters.
Kloza, the OPIS analyst, expects the Russian question to continue to loom over energy markets.
“As long as it looks like European countries are heading for new restrictions,” Kloza said, “it’s hard for the market to go down for more than a day or two.”