Gas prices have surged to four-month highs. Don’t panic

New York (CNN) — Prices at the pump are rising fast — and it’s not even spring.

After bottoming at $3.07 a gallon in mid-January, the national average climbed to $3.40 a gallon on Friday, according to AAA. That’s a four-month high.

The speedy price increase threatens to unwind progress on inflation and add to the financial pressure some Americans are feeling. If the trend continues, or even accelerates, it would likely cause major problems for the Federal Reserve’s tentative plan to start cutting interest rates in the coming months. A gas price spike might be the last thing President Joe Biden needs to convince skeptical voters about his economic agenda.

But experts say there is no reason to panic about gas prices, at least not yet.

Gas prices always rise at this time of the year.

The end of winter means higher demand for fuel as the weather warms up. It also means the end of cheap winter fuel and the switch to the more expensive summer fuel blend, a process that is just getting started in most states.

Since 2005, there have only been three years when prices fell during this time of the year, according to Bespoke Investment Group. And one of those years was 2020, when Covid-19 started to threaten the world economy.

Bespoke’s Paul Hickey notes that the year-to-date increase in gas prices through March 7 was just 9.2% — only slightly ahead of the historical average of 8.3%.

“Given that history,” Hickey wrote in a report, this year’s increase “doesn’t seem so extreme or worrying.”

Hickey told CNN it would take a “much larger” jump in prices before it altered the Fed’s plans. “There’s a lot of room left before this type of move would be considered anything outside of normal,” he said.

This year’s late-winter jump in prices has been boosted by refinery troubles. Extreme cold in January knocked some refineries offline, limiting how much gasoline (and diesel and jet fuel) is available to customers.

For instance, the Whiting refinery in northwest Indiana — the largest BP refinery on the planet and the biggest refinery in the Midwest — shut down in early February and has not fully recovered.

That helps explain why drivers in the Midwest have seen big price increases. Gas prices have surged over the past month by an average of 47 cents in Michigan and 43 cents in Illinois, according to AAA.

Oil prices are stuck

The good news is that refineries are starting to get healthy again.

After tumbling to a multi-year low in February, the refinery utilization rate — a closely watched metric of how much oil refineries are processing relative to their maximum capacity — rebounded significantly in early March.

And despite the refinery trouble, gas prices are still a bit cheaper than a year ago when the national average was $3.45 a gallon.

Oil prices have been relatively tame, despite a slew of challenges overseas.

OPEC+, the producer group led by Saudi Arabia and Russia, continues to keep oil off the market. Earlier this month OPEC+ agreed to extend its production cuts through June in a bid to avoid a supply glut.

On Sunday, Saudi Aramco reported that 2023 profits plummeted 25% to $121.3 billion after a record-shattering $161.1 billion net income in 2022. The oil giant said the year-on-year drop could partially “be attributed to lower crude oil prices and volumes sold.”

Meanwhile, the Russia-Ukraine conflict continues, and Houthi attacks on vessels in the Red Sea have only escalated.

And yet US oil prices are struggling to break through $80 a barrel. In fact, crude is trading just $2 above the levels at this time last year.

“Oil prices have been pretty dull,” said Patrick De Haan, head of petroleum analysis at GasBuddy.

Is $4 gas next?

All of this explains why veteran oil analyst Andy Lipow is not bumping up his gas price forecast.

During the summer, Lipow expects the national average to range between $3.50 and $3.75 a gallon. That’s not cheap, but it’s a far cry from the unprecedented spike above $5 in June 2022.

Of course, there’s always the potential for unexpected events that could spike gas prices.

A widening of the war in the Middle East, a massive refinery outage or a major hurricane disrupting US Gulf Coast refineries would surely lift gas prices.

But short of that, GasBuddy’s De Haan agrees gas prices will likely stay below $4 a gallon this year.

“I don’t expect there will be a huge breakout in prices. It would take an exceptional event,” he said.

If anything, De Haan said the earlier-than-expected jump in gas prices this year could cause prices to peak sooner than usual.

“By Memorial Day, prices should be starting to fade,” he said. “Prices will likely be dropping this fall as they usually do — and that will collide with the election.”

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