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Gasoline prices are on the rise as warm weather and the summer travel season draw nearer. The national average price of regular unleaded gas hit $3.53 per gallon today, up 26 cents from a month ago. It’s not one single factor pushing prices higher, but several: A rise in crude oil prices, the added expense for refiners of making summer-blend gasoline, and geopolitical events that are raising concerns about supply hits. On the last point, terrorist attacks on shipping in the Red Sea continue to force tanker ships to take longer routes to and from the oil-rich Middle East, adding to the cost of moving oil and refined fuels. More recently, Ukraine has carried out a series of drone attacks on refineries in Russia as part of the ongoing war between the two nations. These events have not caused major supply disruptions, but they are making traders nervous and adding a fear premium to prices.
We look for gas prices to rise at least a little more, likely reaching $3.60 to $3.70 per gallon later this spring. If any of the simmering geopolitical concerns flare up and cause significant losses in the supply of crude oil or refined fuels, retail gas prices could get near $4 per gallon. Diesel should also rise from its current average of $4.06 per gallon.
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Benchmark West Texas Intermediate crude oil has surpassed $80 per barrel in recent trading, after spending much of the winter closer to $70. The continued resilience of the U.S. economy is one reason, along with production cutbacks by OPEC and its partners. We look for WTI to trade from $80 to $85 per barrel this spring, though if the situation in the Red Sea worsens or another crisis breaks out in the Middle East, a sharp price spike is likely.
Natural gas prices have risen a bit recently, but they remain near multiyear lows. Benchmark gas futures contracts recently traded near $1.70 per million British thermal units, reflecting the overall mild winter the United States just experienced, which kept heating demand in check. Spring is usually a season of low demand, too, which will allow stockpiles of gas in underground storage to keep rising. They are already 41% above average for this time of year, according to the Department of Energy. However, natural gas prices should head higher at some point later this year. A hot summer would fuel strong demand for gas, as power plants work to keep up with electricity usage. Also, more U.S. natural gas will be exported to Europe and other markets as new liquefied gas export terminals come online. So, while gas is dirt-cheap now, it seems likely that today’s oversupplied market won’t last too long.
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