Date: Wednesday, March 9, 2022
Source: The Wall Street Journal
Prices at the gas pump are soaring to near-record levels across the U.S., threatening to further pressure consumers and an economy already struggling with sky-high inflation.
On Monday, the national average price for regular gasoline hit $4.065 a gallon, the highest price since July 2008 and approaching the record of $4.114 reached that same month, according to AAA.
The week’s run-up was fueled by traders, shippers and financiers shunning Russian oil, removing millions of barrels of oil from global supplies. That has squeezed a market already tight amid a rebound in the global economy as it emerged from two years of Covid-19 restrictions. Recovering demand has cranked up inflationary pressures around the globe, rattling the production of everything from cars to corn.
“If we were in a supply crunch before the Russia invasion, right now we are in a hyper-supply crunch” for oil, said Claudio Galimberti, senior vice president of analysis at energy consultant Rystad Energy. “We are in a price crunch of historical proportions.”
In the U.S., the ability to refine gasoline declined sharply during the pandemic-driven economic slowdown. The market has lost about one million barrels of daily petroleum-refining capacity since early 2020, when the U.S. was producing about 19 million barrels of refined petroleum a day. It is a recipe for higher prices as growth returns, even without the Ukraine crisis, analysts said.
Connie Schaefer, a stay-at-home mom of eight children in Columbus, Ohio, pays about $80 to fill up the tank of her Honda minivan. On Monday, when she saw a gas sign for $3.79 a gallon, she pulled into the gas station.
“I don’t really need that (gas) at above half a tank, but I thought ‘I better fill up while it’s this price.’ I saw another down the street at $3.99,” she said.
Diesel fuel also has skyrocketed, gaining 50% in the year to date as of late last week, according to commodity tracker OPIS, an increase likely to pressure shipping costs for long-haul truckers that could in turn get passed on to consumers.
“The price of diesel and the price of heating oil have seen price increases we’ve never seen for a refined product in the U.S.,” said Tom Kloza, global head of energy analysis for OPIS, which is owned by Dow Jones & Co., owner of The Wall Street Journal.
Gasoline prices vary regionally based on taxes and access to energy infrastructure, but a sustained climb could reverberate through the economy, pushing inflation higher even as consumers get squeezed. “A sustained global oil price shock, were it to occur, would pose significant economic risk,” Moody’s Investors Service said in a Thursday report.
Analysts were split on whether gasoline prices could rise high enough to discourage Americans from road trips when the spring and summer traveling season begins. If fewer people venture out onto the highways due to nosebleed gasoline prices and belt-tightening, that could reduce demand, potentially easing pressure at the pump.
Mohammed Khalifa, a resident of Alexandria, Va., said he might consider giving up a road trip vacation if gasoline prices rise much higher. He said that he and his wife drive about 40 to 50 miles a day and that he has little choice but to pay whatever is demanded at the pump.
”There’s very little you can do about it,” he said at a Mobil station in Alexandria where regular gasoline cost $3.99 9/10.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, said that after two years of Covid-19 he expects consumers to hit the road even with high gasoline prices. The last time rising gasoline prices curbed demand was in 2008 amid a spike in oil during the financial crises, he said. Back then, gasoline rose to a record $4.11 a gallon, which equates to about $5.20 a gallon today adjusted for inflation, he said.