Gas prices are now 27% higher than the day before Russia invaded Ukraine.
Andy Lipow, president of Lipow Oil Associates, told CNN Monday: “Everything points to a higher price. We’re on our way to about $5.”
Citing a rise in gasoline futures, Lipow is raising his forecast for gasoline from $4.50 to $4.75 a gallon, suggesting that Memorial Day weekend drivers may be greeted with a record price hike.
Lipow said $5 is “possible,” though he acknowledged that expectations could change considerably if there was a sudden development in the war in Ukraine or with Covid.
According to the AAA, the average is already above $5 a gallon in four states: California, Washington, Nevada and Hawaii. Oregon is just a penny away.
High gas prices make inflation worse
It is important to note that gas prices are not at record levels after adjusting for inflation. The inflation-adjusted record was set in June 2008 when they averaged $5.38 per gallon, according to the US Energy Information Administration.
However, the recent jump in gas prices threatens to exacerbate the inflation problems facing households and the broader US economy.
The problem is that supply still can’t keep up with demand, especially for gasoline, diesel and other petroleum products. Gasoline futures jumped to new highs on Monday.
The good news, according to Lipow, is that gasoline production should pick up in the coming weeks as US refineries wind down their maintenance season.
The bad news is that oil prices are still high.
Oil prices delved further into the triple-digit region on Monday, raising the specter of higher gas prices in the coming days.
US oil jumped 3.4% to $114.50 a barrel – the highest close since March 23. Brent crude, the global benchmark, rose about 3% to $114.50 a barrel in recent trading.
Energy demand continues to rise as the world recovers from Covid-19. Despite China’s Covid lockdowns, oil demand in March reached 101% of 2019 levels, according to the International Energy Forum, citing newly released data from the Joint Organizations Data Initiative (JODI).
However, supply continues to slow, with production at just 97% of 2019 levels.
“The Covid situation in Shanghai is easing a bit. Demand may come back,” said Robert Yuger, vice president of energy futures at Mizuho Securities. “If there is a breakout, it could unleash crude oil.”
Until the last few days, oil prices had not risen as much as retail prices for gasoline and diesel, both at or near record levels.
The supply of petroleum products such as gasoline has struggled to keep pace with demand, in part due to limited firepower from refineries after refineries closed in recent years.
“No one can operate the refinery because they do not have spare capacity,” Yauger said.
Over the past two years, the United States has lost about 5.5% of its refining capacity, according to the US Energy Information Administration.
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