Gasoline Pump Prices Near 1-Year High: Is This An Inflationary Threat?

Gasoline prices at the pump are on the rise again, after falling to a two-and-a-half-year low in early January.

On Wednesday, the national average price rose to $3.30 a gallon, up 2.2 cents from a week ago, and up 25 cents from $3.05 hit on January 11, which was the lowest since June 2021.

Underlying crude oil prices have been rising in recent weeks with Nymex WTI crude futures up 10% since the start of the year as rising tensions in the Middle East and attacks on oil shipments in the Red Sea have raised concerns over supply.

On Wednesday, WTI was up fractionally at $78.90 a barrel, while the United States Oil Fund USO, an exchange-traded fund that tracks a basket of oil prices, was standing close to a three-month high at $73.84.

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Wholesale Gasoline Price Jump

Wholesale gasoline prices have risen more dramatically as gasoline stockpiles, reported by the Energy Information Administration, have fallen over the past four weeks.

Since the beginning of the year the RBOB Gasoline futures price is up 22% at $2.575 a gallon. The United States Gasoline Fund ETF UGA is up 10% in 2024, but was trading 0.9% lower on Wednesday.

Patrick De Haan, analyst at Gas Buddy, said on X: “The national average has risen to $3.30/gal this morning, up 2.2 cents from last week and will likely continue to climb. By later today, we could see the national average back to a YoY increase.”

Currently, he said, the national average price remained just 1.5 cents below a year ago.

Adding to concerns, a storm system in the Midwest that has produced several tornados in the region was reported by De Haan to be nearing three major refineries — Exonn Mobil Corp‘s XOM Joliet, Citgo‘s Lemont and BP Plc‘s BP Whiting facilities.

As yet, no disruptions have been reported.

Inflation Pressure

Rising fuel prices could add to speculation that inflation may remain stickier than expected in the coming months, further adding to the possibility that the Federal Reserve’s highly-anticipated first-rate cut will be delayed beyond its May or June policy meetings.

While several rate cuts are priced in by the market for this year, persistent and continued attacks in the Red Sea and any escalation of tensions in the Middle East could push oil and gasoline prices higher, which would have an impact on headline consumer price inflation.

"The market might be wrong, as much as it was wrong in completely underestimating inflation and overestimating the slowdown of the economy. And to be fair, the Fed, by delaying the tightening cycle by one year, was in the same camp," said Claudio Irigoyen, rates analyst at Bank of America.

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