You may have noticed that gas prices are on the rise once again.
And this year’s run-up is not only larger and faster than recent years, but is beginning earlier.
The average motorist saw prices at their local gas station soar by about $0.45 per gallon last month.
In fact, the national average for a gallon of regular gas at one point hit $3.78 – a new monthly record. That pushed the average price for the entire month of February to $3.65 per gallon, topping the previous record by $0.10.
At this point, it’s strange to remember a time when oil companies worried that gas prices of $4 per gallon would destroy demand.
Indeed, gas prices will almost certainly breach the $4 mark before they ever fall back below $3 per gallon.
The biggest reason for this is oil prices, which account for about 70% of gas prices. The price of oil in February hit $98 a barrel – the highest level in nine months. Even now, at $91 a barrel, WTI crude is as cheap as it’s been all year, but it still costs 7% more than it did in November.
Other factors – such as transportation costs, taxes and refining capacity – influence gas prices, as well.
Currently, there aren’t enough pipelines running from the Midwest and Gulf of Mexico to the East Coast, where many U.S. refineries are located. In fact, the overtaxed 5,500-mile Colonial pipeline is the only pipeline connecting the Northeast to the shale-born supplies of the Midwest.
Making matters worse, the only seaborne vessels permitted to move goods between U.S. ports are those built, owned, operated and crewed by U.S. citizens and registered under the U.S. flag. Many analysts have cited the higher costs associated with those shipping regulations as a potential catalyst for the recent surge in gas prices. Though, that’s been the law of the land for decades, thanks to the Merchant Marine Act of 1920, better known as the Jones Act.
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Seasonal outages are another concern. Seasonal plant maintenance idled about one million barrels per day of refining capacity last month. In fact, refineries used just 82.9% of capacity in the week ended February 5, the lowest level in 11 months, according to the Energy Information Administration (EIA).
Still, it’s the so-called “crack spread” – the difference between the price of oil and market prices for refined products – that has the biggest impact on gas prices. So as along as oil prices remain high, gas prices will, too.
Indeed, even if we get some short-term relief, we’re almost certain to see another serious spike to $4.00 or more per gallon this summer. And that’s going to be an annual occurrence until motorists switch to liquefied or compressed natural gas to power their vehicles.
And “the chase” continues,