California’s $6 gas price could spread across the country, JPMorgan warns

New York
CNN Business

The average gasoline price in California hit $6 a gallon for the first time on Tuesday — a price that analysts at JPMorgan warned could hit the national average by the end of the summer.

The startling prediction comes as U.S. natural gas prices soar to record highs Russia invades Ukrainecast a shadow over the economy.

Natasha Caneva, head of global oil and commodities research at JPMorgan, told CNN in an email Tuesday, “By August, oil could hit more than $6 a gallon, which is a real risk.”

With U.S. gasoline inventories at their lowest seasonal levels since 2019, JPMorgan worries that this summer’s driving season will struggle to meet strong demand.

“U.S. retail prices could surge another 37% by August on expectations of strong demand,” JPMorgan wrote in its report titled “Brutal Summer.”

this National average Regular gasoline prices rose another 2 cents on Tuesday to an all-time high of $4.52, according to AAA. That has lifted prices by 15 cents in the past week and 44 cents in a month.

Really cheap natural gas is getting harder to find. Georgia, Kansas and Oklahoma were the last three states to have an average price below $4 a gallon on Monday, all surpassing that threshold in Tuesday’s readings.

In Tuesday’s AAA data, the average price of regular gasoline in California exceeded $6 a gallon. The state’s average of $6.02 a gallon was up sharply from $4.13 a year ago and $5.84 a week ago.Many big cities are paying More: The average price is $6.07 in Los Angeles County and $6.27 a gallon in San Francisco.

Even in California, 52 percent of gas stations sell natural gas for less than $6 a gallon, and nearly a quarter sell gas for $5.75 a gallon or less. Stations with much higher fees drive up the average price.

High-priced stations that charge well above general market rates aren’t limited to California. According to OPIS, the service that collects natural gas price data for the AAA, natural gas sells for more than $5 a gallon in 29 states. Six of them—Alaska, Hawaii, Nevada, Oregon, Washington and California—have state averages above that standard. So even though the national average has never been that high, drivers across the country can see some stations priced at or near $6. Those station owners will be content to sell fewer gallons as long as they can sell for a higher price.

Note that this is only a prediction.

Others in the industry are skeptical that prices will get this high, simply because some Americans might turn down $6 gas and just drive less.

“It’s hard to get to $6,” Andy Lipow, president of Lipow Oil Associates, told CNN. “Before we get there, our needs will be severely disrupted, not just here, but around the world.”

Patrick De Haan, director of petroleum analysis at GasBuddy, agreed, saying: “I personally think we’re going to see a recession before we see the national average of $6.”

DeHaan says Disagree with JPMorgan — at least not yet. However, given the widening imbalance between supply and demand, he admits, “I don’t think anything is impossible in this market.”

JPMorgan acknowledged that one caveat to its forecast is that “demand is likely to continue to fall short of our expectations.” So far this year, gasoline demand has averaged about 500,000 barrels a day below JPMorgan’s original forecast.

But it’s hard to know exactly how consumers will react as Covid-weary households are eager to leave this summer – and they face a choice between high and high oil prices Very high airfare.

Federal forecasters expect gasoline prices to fall below $4 a gallon in the second half of the year. The U.S. Energy Information Administration projected last week that the national average would fall to $4.81 a gallon in the third quarter and $3.59 a gallon in the final quarter of the year.

The problem is that refineries are struggling to produce all the gasoline they need right now. There is less refining capacity in the U.S. and Canada today than before the pandemic, as some refineries are permanently closed and others are diverted to refining renewable fuels instead of crude oil.

JPMorgan noted that gasoline inventories on the East Coast were at their lowest level since 2011. Analysts at the bank said the main driver of the drop in inventories was higher-than-normal gasoline exports.

As high as the price in the US, the price in Europe is much higher and this is dealing with Loss of supply from Russia. This is a major factor driving exports from U.S. and Canadian refineries that typically supply gas stations in the eastern U.S.

“If exports continue to grow at this high rate and refinery operations – already near the top of reasonable utilisation range – fall below our expectations, gasoline inventories may continue to fall below their 2008 lows and retail gasoline prices may decline. Climb to $6/gal and even higher,” JPMorgan analysts wrote.

Under those assumptions, total U.S. gasoline inventories could fall below 160 million barrels by the end of August, the lowest level since the 1950s.

The bank said this drop in inventory represents a 37% increase in prices, equivalent to a national average of $6.20 a gallon. At these levels, natural gas prices would surpass the inflation-adjusted peak of $5.38 set in June 2008, according to the EIA. At that time the price reached $4.11, unadjusted for inflation.

JPMorgan said that unless refiners “immediately” cut exports and shift production to gasoline, “U.S. consumers should not expect a sharp pullback in oil prices before the end of the year.”

One thing that could cap or even lower gasoline prices is if the U.S. economy slows or into recessionStrong job growth is one factor driving gasoline prices as more people drive to work and have money to spend on gasoline. If the employment trend reverses, this will prevent gasoline prices from rising, but at a dire cost.

One uncertainty that could raise gasoline prices if a major hurricane hits U.S. refineries and oil platforms on the Gulf Coast. The government’s official outlook for the upcoming hurricane season will be released next week.

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