As motorists across the nation buckle up for a bumpy ride this summer, gas prices are revving higher, intensifying concerns about inflation and signaling potential delays in interest rate adjustments throughout the first half of 2024.
The American Automobile Association’s Gas Prices Monitor reports that the national average for a gallon of regular gasoline climbed to $3.49 on Tuesday.
In regions notorious for hefty gas taxes like the West Coast, drivers are already forking out more than $4 for each gallon. The Golden State leads the pack with an average of $4.92, followed by Hawaii at $4.70, Washington at $4.33, and Nevada at $4.22.
Conversely, states situated closer to refining hubs along the Mexican Gulf and extending through the Midwest are enjoying the lowest prices at the pump.
Ukraine-Russia Conflict Fuels Wholesale Gas Price Surge
A notable contributor to the recent pump price crescendo is the surge in wholesale gasoline prices witnessed on commodity exchanges. RBOB Gasoline futures ebbed slightly on Tuesday following a peak on Monday soaring to heights not witnessed since August.
The United States Gasoline Fund UGA, an exchange-traded fund mirroring wholesale gas futures prices, edged up 1.7% to $71.58 on Monday, marking its loftiest level since September.
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The recent upsurge in gasoline prices can be traced back to ongoing drone assaults by Ukraine targeting Russian refineries. Notably, commodity trader Gunvor asserts that up to 600,000 barrels per day of production capacity have been idled due to these attacks.
Contrary to this estimate, JPMorgan analysts suggest that the figure could be closer to 900,000 barrels per day.
Patrick De Haan, GasBuddy analyst, remarks, “Russia boasts a total refining capability of around 5.5 million barrels daily. At best, 10% of their refining capacity is out of action, but some projections hint it might be closer to 15%.”
Sanctions on Russia have stanched oil and petroleum exports, creating a scarcity in gasoline inventories for both domestic consumption and for nations circumventing Western sanctions. This scenario is anticipated to bolster dependence on OPEC’s output, potentially propelling global distillate prices.
“Drone strikes on Russian refineries are heightening global supply uncertainties,” noted commodity analyst Giovanni Staunovo on X.
Among the most impactful assaults thus far was the March 12 strike on Lukoil’s Nizhny Novgorod refinery, halving diesel production and slashing gasoline output by approximately 25%. A day later, the Ryazan refinery owned by Rosneft was hit, resulting in a one-thirds reduction in gasoline output and over half in diesel production. Subsequently, a March 16 strike at the Syzran refinery brought production to a complete standstill.
Crude Oil Breaches $80 Per Barrel Mark
In the broader oil market landscape, crude prices linger near four-month peaks, with Nymex WTI U.S. crude futures standing sturdy at $82.13 per barrel. The United States Oil Fund ETF USO has maintained its position near October highs, hovering around $78.
The ramifications of spiraling car fuel prices in the U.S. extend beyond the commodity sphere, stretching to the Federal Reserve and the White House.
As the Fed convenes this week for its March Open Market Committee meeting – an assembly initially anticipated in late 2023 to kick off a series of rate cuts – current projections suggest that any policy tweaks may not manifest until May. The prevailing consensus among economists hints at potential adjustments in either June or July.
The latest consumer inflation data from last week revealed that the energy and shelter indices together accounted for nearly two-thirds of the overall increase in inflation rates in February.
Simultaneously, oil corporations are reaping the benefits of the resurgent oil prices. Exxon Mobil Corp XOM has gained 7.5% in March, while Chevron Corp CVX is up 2.2% since the beginning of the month.
The Energy Select Sector SPDR Fund XLE, which tracks U.S. oil companies – including the aforementioned giants – has surged by 5.8% in March.
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Image created using artificial intelligence with Midjourney.
