Why are gas prices rising this month?

Why are gas prices rising this month?
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Normally, gas pump prices drop when winter is dead, as bad weather keeps Americans off the roads. But something unusual is happening this year: Gasoline prices are skyrocketing.

National average for regular gas jumps to $3.51 a gallon Friday, according to AAA. Gas prices rose 12 cents last week and 41 cents last month, though far from the record $5.02 per gallon last June.

As a result, the national average has increased by more than 9% since the end of last year – the largest increase since 2009 to begin a year, according to Bespoke Investment Group.

The AAA says some states saw much larger gains last month, including Colorado (98 cents), Georgia (70 cents), Delaware (62 cents), Ohio (60 cents) and Florida (59 cents).

The unusual winter rise in gasoline prices is rolling the eyes of American drivers who are already grappling with high prices at the supermarket. At the same time, it threatens to undermine the recovery from the inflation crisis that ravaged the economy last year.

So why are gasoline prices rising?

It’s not because demand remains weak even at this time of year.

Instead, the problem is supply.

Late last year, extreme weather conditions across much of the US caused a series of outages at refineries that produce gasoline, jet fuel and diesel, keeping the economy buoyant.

For example, Colorado’s only refinery, the Suncor refinery outside of Denver, was disrupted by freezing temperatures. When he tried to restart the refinery, fire broke out and equipment was damaged.

Suncor said the refinery, which Lipow Oil Associates says represents 17% of the Rocky Mountain region’s refinery capacity, could be down for at least weeks.

This helps explain why gas prices in Colorado rose nearly $1 a gallon last month.

Refineries elsewhere were also down due to extreme weather. According to Bespoke, US refineries are operating at only 86% of their capacity, up from the mid-90% range in early December.

Beyond the refinery problems, oil prices rose, helping pump prices slide northward.

Since dropping to $71.02 a barrel on December 9, US oil prices have risen nearly 16% to $82.30 on Friday. This increase was due in part to expectations of higher worldwide demand as China eased its Covid-19 policies.

At the same time, oil markets are no longer receiving large volumes of emergency oil injections from the Strategic Petroleum Reserve. The Biden administration has moved from releasing unprecedented amounts of oil from this stockpile to starting the process of refilling it.

The good news is that some refinery problems can be temporary, meaning supply must catch up with demand.

The bad news is that some experts warn that gasoline prices could continue to rise anyway.

Andy Lipow, president of Lipow Oil Associates, expects the national average to reach $3.65 per gallon by spring.

Patrick De Haan, head of oil analysis at GasBuddy, typical spring jump in prices will be pulled forward.

“It could happen as early as March, instead of $4 a gallon in May,” De Haan told CNN. “There’s more upside risk than downside risk.”

The return of $4 petrol can be painful for drivers and undermine consumer confidence. What’s more, the pain at the pump will complicate the inflation picture as the Federal Reserve debates whether to slow the rate hike campaign.

The Cleveland Fed’s Current Inflation Forecast model points to a 0.6% month-on-month increase for the January Consumer Price Index. If true, it represents a significant acceleration compared to the 0.1% drop in prices between November and December.

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