Gas Prices Set For Summer Spike: West Coast Consumers Already Paying More Than $4 A Gallon

Gas prices at the pump are on the rise and could lead to a higher national average next month, exacerbating inflation concerns and lowering the prospect of interest rate cuts during the first half of 2024.

According to the American Automobile Association’s Gas Prices Monitor, the national average price of a gallon of regular gas hit $3.49 on Tuesday.

Some states, particularly the higher taxed regions on the West Coast are already paying upwards of $4 a gallon, with California’s average hitting $4.92, Hawaii at $4.70, Washington at $4.33 and Nevada $4.22.

Those paying the lowest are the states closest to domestic refining facilities around the Mexican Gulf and up through the Midwest.

Wholesale Price Leaps As Ukraine Strikes Russia Refineries

Much of the recent moves higher at the pump are due to higher wholesale gasoline prices on commodity exchanges. On Tuesday, RBOB Gasoline futures were down a shade after hitting their highest levels since August on Monday.

The United States Gasoline Fund UGA an exchange traded fund that tracks the price of wholesale gas futures, gained 1.7% to $71.58 on Monday, hitting its highest level since September.

Also Read: Saudi Aramco CEO Amin Nasser Says ‘Abandon The Fantasy Of Phasing Out Oil And Gas’

The surge in gasoline prices in the past couple of weeks has mainly been down to continued drone attacks by Ukraine on Russian refineries. Commodity trader Gunvor believes as much as 600,000 barrels worth of daily output capacity has been halted by these attacks.

JPMorgan analysts, meanwhile, reckon that number is closer to 900,000 barrels per day.

Patrick De Haan, analyst at Gas Buddy, said: “Russia has total refining capacity of around 5.5 million barrels per day, so at best 10% of their refining is offline, but by some estimates, it may be closer to 15%.”

Sanctions on Russia have halted oil and petroleum exports, leading to a squeeze in gasoline stocks for both its domestic needs and for countries bypassing Western sanctions. This situation is expected to increase reliance on OPEC’s production, potentially driving up global distillate prices.

“Drone attacks on Russia refineries adds to global supply risks,” said commodity analyst Giovanni Staunovo on X.

Among the most significant attacks so far has been the March 12 strike on the Lukoil refinery at Nizhny Novgorod, which halved diesel production and cut gasoline output by around a quarter.

A March 13 attack on Rosneft’s Ryazan refinery knocked out a third of its gasoline and more than half its diesel production. And a March 16 strike on the Syzran refinery halted production completely.

Crude Trading Above $80 A Barrel

In the broader oil market, crude prices remained close to four-month highs, with Nymex WTI U.S. crude futures standing firm at $82.13 a barrel. The United States Oil Fund ETF USO held at October highs at around $78.

Implications in the U.S. of rising car fuel prices extend far beyond the commodity market, to the Federal Reserve and the White House.

The Fed meets this week for its March Open Market Committee. At the end of 2023, this was broadly expected to be the meeting at which the central bank kicked off its rate cutting cycle. Now, the earliest economists anticipate any changes is May, with most projecting adjustments in either June or July.

Last week’s consumer inflation data showed that the energy index combined with the shelter index contributed to nearly two-thirds of the total rise in inflation in February.

Meanwhile, oil companies are benefiting from the renewed strength in oil prices. Exxon Mobil Corp XOM is up 7.5% in March, while Chevron Corp CVX is up 2.2% on the month.

The Energy Select Sector SPDR Fund XLE, which tracks U.S. oil companies, including the above, is up 5.8% in March.

Now Read: Oil Prices Jump To Four-Month High, Surpass 200-Day Average: ‘Momentum Indicators Remain Bullish‘

Image created using artificial intelligence with Midjourney.