Average price of a liter of gasoline in the US hits $5 for the first time

For the first time, a gallon of regular gasoline now costs $5 on average in the United States, according to data from the American Automobile Association (AAA) on Saturday.

The record is not a surprise. Fuel prices have been rising steadily for the past eight weeks, and this latest figure marks the 15th day in a row that AAA data has hit a record price and the 32nd time in the last 33 days.

The national average stood at $4.07 when the current rush of price increases began on April 15th. The current OPIS price reading represents a 23% increase in less than two months.

And rising gas prices are doing more than just causing drivers pain at the pump. They are a major factor in the pace of prices paid by consumers for a full range of goods and services, rising at the fastest pace in 40 years, according to the government’s inflation report on Friday.

Inflation sent consumer confidence to a record low on Friday, according to a University of Michigan survey. Concern over what the Federal Reserve will do to fight inflation has sent US stocks plummeting in recent months, wiping out billions in household wealth.

While a $5 national average is new, $5 gasoline has become unpleasantly common in much of the country.

Data from OPIS, which collects the readings from 130,000 U.S. gas stations used to compile AAA averages, showed that 32% of stations nationwide, nearly one in three, were already charging more than $5. per gallon in readings on Friday. And about 10% of stations across the country are charging more than $5.75 a gallon.

The state average was $5 per gallon or more in 21 states and Washington DC in Saturday’s reading.

Gasoline at $6 knocks on the door

And gasoline prices shouldn’t stop there. With the start of the summer travel season, demand for gasoline, along with Russian oil shipments cut off due to the war in Ukraine, oil prices are rising in global markets.

The national average for US gasoline could reach close to $6 later this summer, according to Tom Kloza, global head of energy analysis at OPIS.

“Everything goes from June 20 to Labor Day,” Kloza said earlier this week of demand for gasoline as people hit the road for long-awaited getaways. “Come hell or high gas prices, people will take a vacation.”

The highest statewide average has long been in California, where the average was $6.43 a gallon in Saturday’s readings. But the pain of higher prices is being felt across the country, not just California or other high-price states.

Cheap fuel is hard to find

This is in part because the cheapest price wasn’t that low – the average price of $4.47 per gallon in Georgia gives the cheapest average across the state. Fewer than 300 gas stations out of 130,000 nationwide were charging $4.25 a gallon or less in Friday’s OPIS reading. For comparison purposes, before the price spike earlier this year, the record national average for gas was $4.11, set in July 2008.

And even in some states with cheaper gas prices, like Mississippi, lower average wages mean drivers have to work longer hours to earn the money needed to fill their tanks than drivers in some of the higher gas-priced states. , like Washington.

There are some early signs that people are starting to slow down driving in the face of higher prices, but it’s still a modest decline.

The number of gallons pumped at stations in the last week of May was down about 5% from the same week last year, according to OPIS, although gas prices have risen more than 50% since then. The number of car trips in the US has dropped by about 5% since the beginning of May, according to mobility research firm Inrix, although those trips have still increased by about 5% since the beginning of the year.

The main concern is that consumers will cut other spending to continue driving, which could push an economy that is already showing signs of weakness into recession.

Numerous reasons for record prices

In addition to the strong demand for gasoline, there is also a supply problem that is pushing up the price of oil and gasoline. Russia’s invasion of Ukraine, sanctions imposed on Russia in the United States and Europe since then is a major factor as Russia was among the top oil exporters in the world. But it’s only part of the cause.

Oil is a commodity traded on global markets. The United States has never imported significant amounts of oil from Russia, but Europe has traditionally depended on Russian exports. The recent EU decision to ban oil tanker shipments from Russia has driven up oil prices across the world.

The price of a barrel of oil closed above $120 a barrel on Friday, up from the previous month’s $100. Goldman Sachs recently predicted that the average price of a barrel of Brent crude, the benchmark used for crude traded in Europe, will be $140 a barrel between July and September, up from the previous price of $125 a barrel.

Factors other than Russia’s withdrawal from the global market are limiting supply. OPEC and its allies have drastically reduced oil production as demand for oil plummeted in the first few months of the pandemic as many companies around the world closed and people stayed closer to home. Global oil futures briefly traded in negative territory due to a lack of space to store excess oil. Some oil-producing nations have reduced production in an effort to support prices, and some of that production is back online, but not all.

US oil production and refining capacity have also not fully recovered to pre-pandemic levels. And as prices are even higher in Europe, some US and Canadian refiners that normally supply the US market with gas are now exporting gasoline to Europe.

Many oil companies have been slow to ramp up production despite the high price oil could fetch, using those rising profits to buy back their own shares in an effort to drive up the stock price. ExxonMobi (XOM) announced that it intends to repurchase $30 billion of its shares, more than its total capital expenditure budget for the year.