Gas Prices Hit New Highs as Summer Driving Season Begins

HOUSTON — With Russia’s invasion of Ukraine, drivers will have to shell out a lot more to fill up their cars as the summer travel season kicks off this Memorial Day weekend.

The price of regular gasoline in California has already risen to over $6 a gallon, and it’s nearly impossible to find gasoline under $4 anywhere else. Nationally, prices have risen nearly 50 cents per gallon in the past month.

The war in Ukraine is the most immediate cause of the price spike, as global refiners, tankers and traders shun Russian exports, pulling up to three million barrels of oil a day off the market. Energy traders have also pushed up oil prices in hopes that Western governments will impose even tougher sanctions on Russia and its energy industry.

But another reason for the high prices is that, in spite of themselves, motorists have done little to consume much less gasoline. Analysts said people appear to have a healthy appetite to hit the road as the United States recovers from the worst of the Covid-19 pandemic.

“Solving the problem would mean people would have to drive less,” said Tom Kloza, global energy analysis manager at Oil Price Information Service. “But people say, ‘I’m sorry, I’ve been locked up. I’m taking my vacation this summer.

The national average price for a gallon of regular gasoline on Thursday was $4.60, down from $3.04 a year ago, according to AAA. Airfares, which typically vary with jet fuel prices, have risen even faster.

One of the reasons for the rising prices is that national and global fuel stocks are low. About 3% of U.S. refining capacity was taken out of service during the pandemic as oil companies shut down older, unprofitable plants as demand waned. Other refineries around the world have also been closed.

Gasoline prices are largely determined by the price of oil, and this is set in a global market. Analysts disagree on what happens next, largely because international politics has become so unpredictable. A Russian withdrawal from Ukraine would immediately lower prices, as would any relaxation of Western sanctions against Iran and Venezuela. A Russian escalation would do the opposite.

Many experts thought energy prices would rise even more than they did. But China has imposed severe shutdowns in Shanghai and other regions to halt the spread of the coronavirus, dramatically reducing energy demand in the world’s biggest fuel-importing country.

A change in Chinese policy could send prices soaring. But prices could fall if producers in the United States, Canada, South America and the Middle East begin to increase production.

Production in Russia, which accounted for around 10% of global oil supply in recent years, is expected to decline further.

But the country has been able to find new buyers for its energy in China and India. This means that countries in the Middle East now sell more oil to Europe while they sell less to Asia.

A recent report from Citi analysts said expectations of steep Russian output cuts “are overblown.” Analysts have said that up to 900,000 barrels per day that Russia ships by tankers could be diverted from Europe or to countries in Europe that are unable to switch to other suppliers.

Another report released this week by ESAI Energy, a global energy market analysis company, predicted that after seasonal maintenance, summer refinery production would increase in the United States, Europe, the Middle East and in India. China is also looking to sell more gasoline, diesel and other refined fuels.

“These increases in supply will temper price increases at the pumps in the summer,” said Sarah Emerson, president of ESAI.

“You have a lot of different puzzle pieces,” Ms Emerson added, explaining why predicting energy prices is so difficult. “The juxtaposition of recovering from a pandemic and starting a war in Europe makes things very complicated.”

Another unpredictable variable that could cause oil and gasoline prices to skyrocket this summer: hurricanes. A powerful storm could destroy refineries and pipelines along the Gulf Coast, and government forecasters are expecting an “above normal” hurricane season.

“Towards the end of June, when the real summer starts, you could see real pent-up demand kicking in,” said Kloza of the oil price news service. “I fear July because of increased demand, and I fear August because of hurricane potential.”

Oil industry executives have often said that the cure for high prices is very high prices. In effect, they force consumers to buy less fuel or to opt for more fuel-efficient cars. But the drivers don’t seem to be cutting back or making any other significant changes – at least not yet.

Energy analysts say there are tentative signs that gasoline demand could flatten out or even drop a bit, at least on weekdays. Data from the Energy Department in May suggests that gasoline sales fell more than 2% from the same period last year. But the government measures fuel supplied by refiners, marketers and blenders, not retail sales to drivers at the pump. Analysts still expect gasoline sales to jump over the summer, but some drivers may change their plans if prices were to rise much further.

In a recent survey of 2,210 adults by the American Hotel and Lodging Association, 60% said they were likely to take more vacations this year than last. But 82% also said gas prices would impact their destination.

“The pandemic has instilled in most people a greater appreciation for travel,” said association president Chip Rogers, “and that’s reflected in the plans Americans are making to get out and about this summer.”

People also struggled to switch to more fuel-efficient vehicles. Sales of electric and hybrid cars are increasing, but parts shortages have limited supply of all new cars, and some new electric and hybrid models have months-long waiting lists.

Perhaps the only good thing about the pandemic for consumers was the rapid drop in energy prices as the global economy collapsed. But because oil prices have fallen to levels not seen in decades, international oil companies have reduced their investments.

Once demand started to climb last year, oil companies rushed to rehire staff and get rigs back online. But many oil executives have been reluctant to invest too much money in new wells because they fear prices will fall before those wells start producing, leaving them with big losses and debts. As a result, large energy companies are spending much of their rapidly growing profits to pay dividends and buy back shares of their own companies.

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