Prices are rising again at gas stations as refiners switch to producing jet fuel and diesel instead of gasoline and demand soars ahead of the summer driving season.
Before the latest hike, prices were already high across the country. Russia’s invasion of Ukraine has hit oil markets and global gas prices hard, with prices rising as governments reject energy supplies from Moscow.
But prices are getting higher now, averaging $4.48 a gallon on Monday.
That’s up about 40 cents from its price a month ago, when it was $4.08. Most of the recent gains have come in the past few days, as prices rose 16 cents a gallon between May 9 and May 16.
Just as high oil prices brought color to the 2008 election, when Republican vice presidential candidate Sarah Palin slammed Democratic energy policy, today’s oil prices are stirring up the political debate this year. Republicans blamed President Biden’s policies, while Democrats targeted alleged price gouging.
Experts say the latest increase is related to a combination of factors, including fewer refineries converting crude oil into gasoline.
Prices for diesel and jet fuel, also produced at refineries, are soaring, and experts say many refiners are turning to these more lucrative products.
“With both diesel and jet fuel markets so tight right now, we’re actually seeing refiners opting to reduce gasoline production in favor of those more profitable molecules,” said Matt Kimmel, senior research analyst for refining and oil markets at Wood Mackenzie. .
Even before the latest setback, recent refinery closures have sapped the country’s ability to produce gasoline, said Patrick De Haan, director of petroleum analysis at gas price app GasBuddy.
An oil refinery in Philadelphia in 2019 on fire; Canadian refineries in 2020 closed due to COVID-19and has since announced a switch to a biofuels business; last year, a Louisiana refinery closed after flood Associated with Hurricane Ida.
“The U.S. now has 1 million barrels less refining capacity per day than it did in 2019, when we needed every barrel of capacity,” De Haan said.
Analysts said these supply issues were combined with higher demand to squeeze the drivers.
“Typically … refineries produce more gasoline ahead of the summer driving season,” said Suzanne Danforth, director of downstream oil and natural gas liquids research for the Americas market at Wood Mackenzie.
“It’s usually peak gasoline demand in the U.S. and people are on the road, but with diesel prices so high … we’re seeing this counter-seasonal trend,” Danfoss added.
Gasoline trading also played a role, said Tom Kloza, head of global energy analysis at the Oil Price Information Service.
“They’ve been buying gasoline futures and selling diesel futures for the past few days, betting that gasoline is coming into peak season and it needs to be priced higher than diesel,” he said.
A futures contract is an agreement to buy or sell a specific quantity of a product on a future date. Kloza described them as “primary movers” of price.
The high prices come at a time when the Biden administration and the Fed are generally battling inflation. President Biden has recently described tackling inflation as his top concern.
Democrats worry that rising prices will make it harder for the party to retain its majority in both the House and Senate. The party has narrow leads in both chambers, and the president’s party typically loses seats in the first midterm elections, regardless of the state of the economy.
House Democrats are trying to focus on price gouging.This week, the House of Representatives expected vote Legislation making it illegal to sell fuel at prices “unreasonably high” and “exploiting” the situation during an energy emergency.
The legislation would authorize the FTC to take legal action against companies selling at such “excessive” prices.
The legislation should pass the Democratic House of Representatives, but is unlikely to pass the Senate, as Democrats need 10 Republican votes to clear a procedural hurdle.
Cloza said he was skeptical of Democrats’ claims about price gouging, calling it “posture.”
“It was everyone in the market — I mean thousands of people — who drove up the price. Exxon didn’t say, ‘I’m going to sell my diesel for $200 a barrel,’” He said.
But Democrats who support the bill point to huge corporate profits and recently announced shareholder buybacks.
“If oil companies simply pass the costs on to consumers, we wouldn’t expect to see a huge increase in profits,” said a spokeswoman for Rep. Katie Porter (D-Calif.), the bill’s sponsor. “These companies continue to raise prices despite record profits, putting pressure on households in the process.”
A spokesman for the sponsor, Rep. Kim Schrier (D-Wash.), also noted, “Not every state has price gouging laws, so this will also ensure that all Americans are protected from price gouging.”