By Bryan Jung
The national average price for a regular gallon of gas was at $3.46 on Jan. 24, according to data from the American Automobile Association (AAA).
The auto association attributed much of the increase in prices to good weather and strong consumer demand in an economy still struggling with high inflation.
“The recent rising temperatures led to rising pump prices,” said Andrew Gross, an AAA spokesperson, “and with the cost of oil hitting $80 a barrel, there is a lot of upward pressure on gas prices at the moment.”
Gas was $0.12 higher from last week’s average price per gallon and a jump from the $3.097 average last month.
Even Texas, which until last week was the only state in the nation with an average gas price below $3 a gallon, saw it go above that mark this week.
American Drivers Face Higher Gas Prices in the Coming Weeks
Meanwhile, outside the Western United States, AAA noted that many drivers are appearing to be taking advantage of the milder winter throughout much of the country by hitting the road.
“Despite the messy West Coast weather, a mild winter elsewhere in the nation may have led to more drivers getting behind the wheel,” AAA said on Jan. 19.
However, a major winter storm expected to hit across the South later this week may change that, according to the National Weather Service.
Most of Missouri is expected to face a winter storm through the morning of Jan. 25, with as much as six inches of snow expected throughout the region.
Meanwhile, pump prices may hit $4 per gallon later this year, but is unlikely to go over $5 per gallon as it did in June 2022, according to most analysts.
Federal government data put the average price in 2022 at $3.97 per gallon and is forecasting $3.32 for this year.
Spike in Crude Prices Are Beginning to Be Felt at the Pump
In the meantime, a rise in crude prices is beginning to have a big effect on U.S. consumer pump prices, which are sensitive to the global oil markets.
As of February, Western economies will start implementing an import ban on refined products, such as diesel and gasoline, from Russia, which will likely set the stage for another supply-side energy crisis this year.
In addition, American oil refineries are preparing for a national period of seasonal maintenance ahead of the shift in March to the production of summer gasoline blends, which could limit production over the next few weeks.
Many refineries in the United States are also undergoing further maintenance due to damage from recent storms, while others overseas are shutting down after delaying repairs to cash in on record margins.
Another cause for high gas prices is that inventories of refined products, particularly middle distillates, still remain low.
Crack Spread Oil Margins Are Up
Oil refining margins have also begun to skyrocket again, with the cost of gasoline, diesel, jet fuel, and other petroleum-based products going up.
The WTI 3-2-1 crack spread, which is the industry’s refining margin measure, rose to a three-month high of $42.31 a barrel on Jan. 24. The refining spread is a leading indicator of future fuel prices.
The WTI 3-2-1 crack spread has only averaged about $10.50 a barrel between 1985 tand 2021, noted Javier Blas, in a Bloomberg opinion column.
Blas said that over the past three decades of recorded data, the crack spread has only traded once above its current level for 72 days, all of them in 2022, excepting the first two days of this week.
Demand for Crude Climbs Again as China Reopens
The global benchmark for the price of oil, Brent crude, has risen around 3 percent since the start of the year and is trading close to $90 per barrel, the highest reported level since late November, reported UPI.
Much of the surge in oil prices is due to the reopening of China’s economy from its tight pandemic-related lockdown, which is now generating robust demand for more crude.
“The market believes that the reopening of China’s economy, despite high coronavirus infection rates, will help to bolster global crude demand while supporting elevated prices,” said AAA.
“For this week, crude prices could continue to climb if ongoing market optimism persists.”
The International Energy Agency forecast that global demand for crude would grow by 1.9 million barrels a day in 2023, partly boosted by China’s reopening.