In a week marked by gasoline prices reaching their highest levels in 2023, US crude oil surpassed the $90 per barrel mark for the first time since November of the previous year. The surge in prices, instigated by the looming threat of Hurricane Lee on northern New England, saw the national average for gas rise to $3.87 per gallon on Friday, according to AAA. However, energy analysts are forecasting a potential respite for consumers, attributing the expected decline to the introduction of less costly winter-grade gasoline.
Despite the imminent hurricane, gas prices are anticipated to peak and subsequently ease, even if crude maintains its $90 per barrel stature, says Tom Kloza, the global head of energy analysis at OPIS. This sentiment is echoed by Andy Lipow of Lipow Oil Associates, who predicts a slight increase in gasoline prices over the next five days, followed by a reduction of approximately $0.10 per gallon in markets east of the Rockies due to the cheaper winter-grade gasoline. The notable exception remains California, where gas prices currently average around $5.52 per gallon, with the winter-grade gasoline not entering the distribution system until November 1.
US Crude Tops $90 Per Barrel, Pushing Gasoline Prices to 2023 Highs
In a recent turn of events, US crude oil prices have surged past $90 per barrel for the first time since November of the previous year, bringing with it a spike in gasoline prices. According to AAA, the national average for gas reached a new 2023 high of $3.87 per gallon on Friday. This coincided with the incoming Hurricane Lee, which was forecasted to hit northern New England.
A Likely Respite for Consumers
Despite the hike in gasoline prices, there seems to be a silver lining on the horizon. Energy analysts predict a drop in prices due to the impending switch to winter-grade gasoline, which is cheaper to produce. Tom Kloza, global head of energy analysis at OPIS, told Yahoo Finance that barring any significant disruptions from Hurricane Lee, gas prices are likely to peak soon. Andy Lipow of Lipow Oil Associates also expects a similar trend, predicting a $0.10 per gallon decline in markets east of the Rockies.
The California Exception
However, not all regions are expected to enjoy this respite. In California, where the average price of gasoline currently hovers around $5.52 per gallon, the switch to winter-grade gasoline won’t take effect until November 1. This means Californians may have to deal with high gas prices for a while longer.
Impact on the Broader Economy
The surge in gasoline prices has raised concerns about its potential negative impact on the broader economy and consumer spending. Research indicates that rising gas prices can lead to pessimistic consumer sentiment, causing a reduction in spending. Additionally, energy prices, specifically gasoline, were the largest contributor to the spike in inflation in August.
The Rise in Crude Oil Prices
Crude oil prices have been steadily climbing over the past three months, with West Texas Intermediate (CL=F) rising by about $22 per barrel since late June to just above $90 per barrel this week. Brent crude futures (BZ=F) have seen a similar rise of more than 30% over the same period. According to Lipow, these prices are likely to remain high as OPEC+ and specifically Saudi Arabia, seek higher prices to balance their domestic budget.
A Look Towards the Future
The recent rally in oil prices has led RBC Capital Markets to speculate the possibility of prices reaching $100 per barrel amid a "momentum-based" market. Major oil producers such as Saudi Arabia have extended their unilateral production cuts for the next three months and Russia has reduced its exports by 300,000 barrels per day through the year end, further strengthening this prediction.
The surge in crude oil prices and the subsequent impact on gasoline prices is a testament to the volatile and interconnected nature of energy markets. While the predicted drop in gas prices due to the switch to winter-grade gasoline will be a relief for consumers, the underlying trend of rising crude prices cannot be ignored. It’s crucial for policymakers and energy companies to address these fluctuations in a sustainable manner, as they have far-reaching implications not just for the energy sector, but for the broader economy as well.