The national average for regular gasoline hit $3.85 a gallon on Monday, according to AAA. That’s the highest level since October 19, 2022, and comes just weeks ahead of Labor Day weekend when millions of Americans will hit the roads.
The summer spike in gas prices has eased, with the cost to drivers moving just gradually higher more recently. The national average is up by two cents over the past week.
Still, gas prices have climbed by 28 cents over the past month and 32 cents since the Fourth of July as a result of higher oil prices caused by Russia and Saudi Arabia cutting supply and extreme heat sidelining some US refineries.
When the summer unofficially started Memorial Day weekend, drivers were enjoying big savings on gas from the year before. Those year-over-year savings have nearly vanished, with the national average down just 11 cents from this point last summer.
According to AAA, there are now 11 states averaging $4 or higher, including Arizona, Illinois and Utah. Colorado and Michigan aren’t far away.
OPEC+ extends production cuts amid global recovery
One of the main factors behind the rise in oil and gas prices is the decision by OPEC+ to extend its production cuts at least until September. OPEC+ is an alliance of oil-producing countries led by Saudi Arabia and Russia that controls about 40% of global supply.
An official source from the Saudi Ministry of Energy told state-run news agency SPA on August 3 that the kingdom will extend this voluntary cut of one million barrels per day. The source told state media the cut could be extended further and the move is aimed at supporting the stability and balance of oil markets.
The OPEC+ group has been gradually easing its output curbs since May, but it remains cautious about the impact of the Delta variant of Covid-19 on global demand. The group agreed in July to increase production by 400,000 barrels per day each month until December, but it still falls short of meeting the growing appetite for oil as economies recover from the pandemic.
US refineries struggle with heat waves and outages
Another factor that has contributed to higher gas prices is the reduced capacity of US refineries due to extreme weather and unplanned outages.
According to data from the US Energy Information Administration (EIA), US refinery utilization fell to 91.3% in the week ending August 6, down from 93.3% in the previous week. The EIA also reported that US gasoline inventories dropped by 5.3 million barrels in the same week, indicating a tight supply situation.
Some of the major refineries that have faced operational issues in recent weeks include Chevron’s Pascagoula refinery in Mississippi, which was shut down by a fire on August 9; ExxonMobil’s Baton Rouge refinery in Louisiana, which was hit by a power outage on August 10; and Valero’s Memphis refinery in Tennessee, which was affected by a leak on August 11.
These disruptions have added to the upward pressure on gas prices, especially in regions that rely on these refineries for their fuel supply.
What to expect for Labor Day weekend and beyond
As Labor Day weekend approaches, many Americans are planning to travel by car for their last summer getaway. According to AAA, more than 37 million people are expected to take road trips during the holiday period, up 11% from last year.
However, they may have to pay more for their fuel than they anticipated. AAA forecasts that the national average for gas could reach $3.90 a gallon by early September, which would be the highest price since November 2014.
The outlook for gas prices after Labor Day depends largely on how OPEC+ and US refineries respond to the demand and supply dynamics in the oil market. If OPEC+ decides to increase its production more than expected, or if US refineries manage to restore their operations quickly, then gas prices could ease off their highs.
However, if OPEC+ maintains its cautious stance, or if US refineries face more problems due to weather or other factors, then gas prices could remain elevated for longer.