Gas Prices Hit 8-Month High as Oil Prices Keep Rising

People use a gas station in Columbia, Md., on May 17, 2023. (Madalina Vasiliu/The Epoch Times)

Gas prices in the United States rose to their highest level in eight months late last week as global oil prices climbed, with California registering the highest prices at the pump.

Regular gas averaged $3.71 per gallon nationally on July 29, the highest since mid-November 2022, according to data from AAA. California saw the highest statewide price, at $4.98 per gallon, while average prices in six states topped $4. The lowest was in Mississippi, at $3.29.

Meanwhile, gas demand saw a marginal increase last week, while domestic gasoline stocks saw a slight decline. As such, should there be a demand spike, AAA expects pump prices to rise, given the tight supplies.

Demand for gas “remains tepid,“ AAA spokesperson Andrew Gross said in the statement. ”It’s lower now than at this time last year and in 2021.

“But while the heat may be keeping some folks home, it also suppresses refinery production, according to experts. Constrained supplies and a higher cost of oil are tipping the balance toward rising pump prices for now.”

Oil prices, which are the primary driver of gas prices, have risen by $4 over the past few days to hover around $80, AAA stated in a July 27 statement.

Oil prices, which are the primary driver of gas prices, have risen for the fifth straight week, to hover around $80 per barrel. Earlier this month, the OPEC+ alliance announced a reduction in oil output.

The alliance, which includes OPEC and allies led by Russia, has been reducing oil supplies since November to boost prices. Saudi Arabia has said that it will extend its 1 million barrels per day of oil cuts into August. Russia announced a 500,000 barrel-per-day reduction for the month. Back in June, OPEC+ had agreed on a deal to restrict oil supply into 2024.

Rising Oil Prices

Patrick DeHaan, head of petroleum analysis at GasBuddy, pointed to the Biden administration’s oil policy as playing a part in the recent rise in oil prices.

“Part of the reason why the market is suddenly swinging up the upside is the end of those Strategic Petroleum Reserve releases that ended in early July,” he told Fox News in a July 28 interview. “Now, the market has swung into an imbalance that will probably grow over the months ahead and can push oil prices up even more significantly.”

Beginning in late 2021, the Biden administration sold oil from the SPR in a bid to rein in rising prices. As a consequence, the reserve had fallen to the lowest level since 1983 by early July this year. With the sale of SPR oil no longer happening, the oil market has thus lost another source of supply, which can add upward pressure on the price.

Mr. DeHaan also raised concerns about hurricanes affecting prices. The hurricane season in the Atlantic basin already started on June 1 and is expected to last until Nov. 30, with their peaks usually during mid-August to mid-October.

“The biggest question looming really when it comes to oil—is the U.S. going to see a major hurricane that could impact our own oil production in the month of August. That would put us at more risk of even higher oil prices in the months ahead,” he said.

As to where oil prices could go, opinions are split among experts. In an interview with CNBC on July 24, Goldman’s head of oil research, Daan Struyven, said that the bank is expecting Brent crude to rise to $86 per barrel by the end of the year. World benchmark Brent crude was trading around $84 per barrel as on July 29; West Texas Intermediate crude, the U.S. benchmark, was at about $80 per barrel.

“We expect pretty sizable deficits in the second half with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” he said.

Pointing to the decline in rig counts, Mr. Struyven said that the bank expects “U.S. crude supply growth to slow down pretty significantly to a sequential pace of just 200 barrels per day from here.”

“Key point here for investors is, with the uncertainty about oil demand being so elevated, investors may require a premium to compensate for the elevated risk from such elevated demand uncertainty,” he said.

However, Per Lekander, the managing partner of investing group Clean Energy Transition, predicts that oil prices could become far cheaper than they are now.

Mr. Lekander told CNBC on July 27 that weak oil demand and a lack of cooperation could end up triggering a collapse of the OPEC+ alliance that accounts for around 40 percent of global crude oil output. The breakup could result in oil plunging to as low as $35 per barrel.

“In a growing market, time is your friend. You just need to wait a bit and things tighten up and improve. ... In a declining market, time is your enemy. You have to keep cutting, keep cutting, keep cutting,” he said.

“The more negative growth [there] is, and the less cooperation you have—and remember the last OPEC decision, it was really the Saudis doing it on their own. ... So, I would say, if my forecast is correct, and I’m very sure it is ... it is going to break.”