Gas prices are increasing from as pandemic restrictions recede and people hit the road. When the coronavirus first hit last year, Americans hunkered down at home, demand for gasoline plunged. Last April, the national average for all grades fell below $2 a gallon for the first time in over four years, according to the U.S. Energy Information Administration. Now, prices are on the rise, up more than 37 cents a gallon nationwide in the last few months to an average $2.94 for regular, and it’s going to get worse. Economists are also warning that fueling up with gasoline could be especially challenging as millions of people return to the roads after a year of being stuck at home. As a result, drivers can expect gas prices to tick up significantly.
Here are 5 reasons gas prices are going up, plus predictions of how high they’re likely to go:
1. Crude oil prices are surging
As with gasoline, the price of crude oil tanked last spring as COVID-19 kept people from traveling. To maintain oil prices, the OPEC cartel and its allies slashed oil production. More recently, crude prices have been soaring – because OPEC has been slow to boost output again. Oil hit $60 a barrel for the first time in over a year, and Goldman Sachs expects prices to hit $72 by summer, according to multiple media reports. “Crude, not demand, has been the main factor driving gas price increases this year,” says Jeanette Casselano McGee, a spokeswoman for AAA. The average price in most states is now higher than a year ago, according to AAA data.
2. Vaccinations are expected to boost travel
As more Americans are vaccinated and life begins to return to something closer to normal, people are driving and flying more. And that trend will contribute to continued rising fuel costs. At the foundation of the rise in oil prices is the fact that the coronavirus situation continues to improve, pushing global oil demand higher as production continues to lag, pushing U.S. gas prices higher.
3. Harsh winter has been tough on refineries
The brutal winter weather in Texas seriously impacted the state’s oil production, forcing refineries to close in America’s top crude-producing state. A dozen refineries in Texas were shut down at least somewhat due to the extreme winter temperatures, taking as much as 20%-30% of the country’s total refining capacity offline.
4. The pandemic also knocked out refineries
Long before the storms, the oil and gas industry was reeling from plummeting fuel sales caused by COVID. By late 2020 there were more than a dozen refinery closures that reduced U.S. production by more than 1 billion barrels per day. Some capacity could come back online in the next few years, but these closure announcements will likely be slow to come back. U.S. oil and gas producers lost tens of thousands of jobs last year, and laid-off workers were left scrambling to make ends meet.
5. Stimulus checks will drive up spending — and prices
Goldman Sachs estimated that $2 trillion in economic stimulus spending over 2021 and 2022 could pump up U.S. oil demand by roughly 200,000 barrels a day. If supplies don’t keep up, that higher demand will mean higher fuel prices. American drivers could find themselves spending close to $3 a gallon for gasoline, on average, by Memorial Day.
