Typically, gas pump prices drop during the dead of winter as inclement weather keeps Americans off the roads. But something strange happened this year: Gas prices are rising.
The national average for regular gas jumped to $3.51 per gallon on Friday, according to AAA. While that’s far from the record $5.02 per gallon in June, gas prices rose 12 cents last week and 41 cents last month.
All told, the national average has risen by more than 9% since the end of last year – the biggest increase to begin a year since 2009, according to Bespoke Investment Group.
AAA said some states experienced larger gains last month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).
The unusual jump in gas prices this winter is drawing eye rolls from American drivers who are already struggling with high supermarket prices. It also threatens to undermine improvements in the inflationary crisis that has gripped the economy for much of the past year.
So, why did gas prices jump?
Not because of demand, which remains weak, even at this time of year.
However, the problem is supply.
Severe weather across much of the United States near the end of last year caused a series of outages at refineries that produce gasoline, jet fuel and diesel that kept the economy humming.
For example, Colorado’s only refinery, the Suncor refinery outside Denver, was disrupted by freezing temperatures. When the refinery tried to restart, it suffered a fire and equipment was damaged.
Suncor indicated that the refinery – which Lipow Oil Associates said represents 17% of Rocky Mountain’s refinery capacity – would be offline for at least weeks.
That helps explain why gas prices in Colorado soared by nearly $1 a gallon last month.
Refineries elsewhere were also sidelined by the severe weather. US refineries are operating at just 86% of capacity, down from the mid-90% range at the start of December, according to Bespoke.
On top of the refinery woes, oil prices have crept higher, which has helped push pump prices north.
Since falling to $71.02 a barrel on December 9, US oil prices have jumped about 16%, to $82.30 on Friday. That growth is fueled in part by expectations of higher demand globally as China relaxes its Covid-19 policies.
At the same time, oil markets are no longer receiving large injections of emergency oil from the Strategic Petroleum Reserve. The Biden administration has moved from releasing unprecedented amounts of oil from the stockpile to beginning the process of replenishing it.
The good news is that some of the refinery problems may prove to be temporary, meaning supply should catch up with demand.
The bad news is some experts are warning that gas prices may continue to go higher.
Andy Lipow, president of Lipow Oil Associates, expects the national average to hit $3.65 a gallon heading into the spring.
Patrick De Haan, head of petroleum analysis at GasBuddy, is concerned that the typical spring jump in prices will drag on.
“Instead of $4 a gallon happening in May, it could happen as early as March,” De Haan told CNN. “There is much higher risk than there is no risk.”
A return to $4 gas will hurt drivers and destroy consumer confidence. Additionally, the pain of the pump will complicate the inflation picture as the Federal Reserve debates whether to slow down its interest rate hike campaign.
The Cleveland Fed’s Inflation Nowcasting model now points to a 0.6% month-over-month increase for the Consumer Price Index for January. If that is true, it would represent a significant acceleration compared to the 0.1% decline in prices between November and December.