Bad news for American car enthusiasts, as the average price of regular-grade gasoline in the country has increased. According to Associated Press, it rose from 7 cents per gallon to $2.90 over the past two weeks. This is already the 10th week straight of increases.
As per Trilby Lundberg, an industry analyst from the Lundberg Survey, the gas hike marks the highest average price achieved since 4 years ago (particularly November 2014). He adds that the increase is heavily driven by higher cost of crude oil and the arrival of summer-grade gasoline. The latter is being used in preventing smog.
The highest recorded average price in the contiguous 48 states is believed to be around $3.73 in the San Francisco Bay Area. As for the lowest, it was around $2.45 in Baton Rouge, Louisiana. The average price for diesel fuel, on the other hand, also rose 5 cents to $3.14.
Senior Petroleum Analyst Patrick DeHaan shares the same sentiment with Lundberg. He also cites crude oil to be the culprit responsible for causing gas prices to skyrocket in a small period of time. DeHaan adds that supply, contrary to what most people believe, has greatly diminished in the last year. This means that oil inventories in the United States alone are somewhat down by over 100 million barrels, which, to put it simply, is 20 percent.
Apparently, the aforementioned has caused crude oil to gain momentum. And while it continues to go up, the price of gasoline goes up, too. DeHaan continues that prices can still go up and are even expected to hit in the next few weeks.
It is worth noting that DeHaan previously mentioned about gas prices reaching more hike during summer, coining this summer as the most expensive one in history. He states that gas prices are really hiking up during spring and summer, but it tends to go down as soon as fall and winter arrive. He, however, said that it is not entirely bad news. That is because car enthusiasts can always switch to summer gas, as it can help them get a little bit of relief.
Experts like DeHaan believe that by June, there will be a chance for gasoline to lower its price. “I’m hopeful that even though we may see some weeks of prices going up, we will eventually see some relief,” he said.
It is revealed that there are three main causes of high gas prices. First things first, it is none other than supply and demand. When the demand for gas is greater, it is only plausible for prices to rise. For instance, when the U.S. shale oil manufacturers increased its oil supply sometime in 2014, the gas prices subsequently went down to their lowest levels – which happened in five years. Nonetheless, the shale oil boom reversed as soon as low prices put a plethora of producers out of business.
Another reason for the gas price hike is seasonal demand, which is why, as stated by DeHaan, prices go high every spring and summer. This is due to the fact that oil futures traders understand why the demand for gas is strong in the summer, for instance, as it is the time when families go out for vacation. This is where they start purchasing oil futures contracts during spring in anticipation of the upcoming price rise.
Last but not the least is commodities traders. They simply buy gasoline and oil at the commodities futures market. These markets enable companies to buy contracts of gasoline for the purpose of future delivery at an agreed-upon rate. Ironically, most traders do not intend to take ownership of the gasoline, as it is their goal to sell the contract for profit instead.