The weather is heating up, and so are gas prices.
The national average for a gallon of regular gasoline rose eight cents since last week to $3.66 due to the rise in oil prices, nonprofit federation of motor clubs AAA said on Thursday. Oil, gas’ main ingredient, accounts for more than half the price of a gallon of gas.
Though a gallon of gas is still 41 cents less than a year ago, analysts warn prices still have room to rise in the near-term and put a crimp in people’s budgets.
“Consumers confronted by inflated prices for basic necessities will now have to spread their budgets even more thinly,” International Energy Agency (IEA) said in an oil outlook on Friday. “This augurs badly for the economic recovery and growth.”
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Why are oil (and gas) prices rising?
Oil prices initially got a boost earlier in April after the Organization of the Petroleum Exporting Countries surprisingly announced it would cut production starting in May by 1.66 million barrels per day.
On Friday morning, oil rose further after IEA predicted global oil demand will climb by 2 million barrels a day this year to a record 101.9 million barrels per day, “buoyed by a resurgent China.” It estimates 90% of the growth in oil demand will come from China.
In the U.S., refineries also are performing routine spring maintenance and transitioning to producing summer gas, which temporarily constricts supply and boosts prices. Summer gas produces less emissions and is more expensive to produce, whereas cheaper winter gas ignites more easily to start your car in cold temperatures
Warm weather usually draws out more drivers, too, boosting demand for gas.
All these factors helped pushed America’s West Texas Intermediate (WTI) oil prices to a four-month high around $83 per barrel on Friday.
“When the cost of crude oil crosses the $80 a barrel mark, that puts a lot of upward pressure on what we pay at the pump,” said Andrew Gross, AAA spokesperson.
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How high will gas prices rise?
No one expects average nationwide gas prices to challenge last June’s record $5.016 per gallon, but analysts generally expect prices to continue ticking higher over the next couple of months.
“$4.50 (per gallon) might be something we could see later this spring or summer, but it comes with huge uncertainty,” said Nikolai Roussanov, Wharton finance professor. “The economy is slowing. If the economy slows enough to reduce demand, then we won’t see gas prices go as high. I think gas will probably be somewhere between here and $4.50.”
Patrick De Haan, head of petroleum analysis at GasBuddy, expects gas prices to start sliding again in June.
“Expect the upward trend to continue through much of the rest of spring, but once the transition to summer gasoline and refinery maintenance are behind us, April and May jumps could bring June slumps,” he said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
