Business information

Average US gas price hits $5 for the first time

The record is hardly a surprise. Gas prices have risen steadily over the past eight weeks, and this latest milestone marks the 15th straight day the AAA reading has hit a record high, and the 32nd time in the past 33 days.

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

And rising gas prices do more than cause problems at the pump for drivers. They are a major factor in the prices consumers pay for a full range of goods and services which are rising at the fastest rate in 40 years, according to the government’s inflation report on Friday.

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

Data from OPIS, which collects 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. gallon in Friday readings. And about 10% of stations across the country charge more than $5.75 a gallon.

The statewide average was $5 a gallon or higher in 21 states plus Washington DC when reading Saturday.

$6 gas could be next

And gas prices shouldn’t stop there. With the start of the summer travel season, demand for gasoline, and Russian oil shipments halted due to the war in Ukraine, oil prices are soaring on world markets.

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

“It’s all from June 20 to Labor Day,” Kloza said earlier this week of the demand for gasoline as people hit the road for long-awaited getaways. “Come hell or high gas prices, people are going to take vacations.”

The highest statewide average has long been in California, where the average stood at $6.43 per gallon in Saturday readings. But the pain of higher prices is being felt across the country, not just in California or other states with high prices.

Cheap gas hard to find

That’s partly because the cheapest price wasn’t all that cheap — Georgia’s average price of $4.47 a gallon gives it the cheapest statewide average. Fewer than 300 out of 130,000 gas stations nationwide were charging $4.25 a gallon or less in Friday’s reading of OPIS. For comparison purposes, before the price spike earlier this year, the record high national average for gasoline 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 to fill their tanks than drivers in some states with higher gas prices, such as Washington.

There are some early signs that people are starting to reduce their driving in the face of rising prices, but it’s still a modest drop.

The number of gallons pumped at stations in the last week of May was down about 5% from the same week a year ago, according to OPIS, even as gasoline prices rose more 50% since then. The number of car trips in the United States has fallen by around 5% since the beginning of May, according to mobility research firm Inrix, although these trips are still up by around 5% since the start of the year.

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

Many reasons for record prices

Beyond the strong demand for gasoline, there is also a supply problem that is driving up the price of oil and gasoline. Russia’s invasion of Ukraine, the sanctions against Russia imposed in the United States and Europe since then, is a major factor, since Russia was among the world’s leading oil exporters. But that’s only part of the story.

Oil is a raw material traded on world markets. The United States has never imported significant amounts of oil from Russia, but Europe has traditionally been dependent on Russian exports. The EU’s recent decision to ban tanker shipments from Russia has pushed up oil prices globally.
The price of crude oil closed above $120 a barrel on Friday, from just under $100 a month ago. Goldman Sachs recently predicted that the average price per barrel of Brent, the benchmark used for oil traded in Europe, would be $140 a barrel between July and September, up from its previous call of $125 a barrel.
In addition to Russia’s withdrawal from the world market, other factors are limiting supply. OPEC and its allies sharply cut oil production as oil demand slumped in the early months of the pandemic as many businesses around the world shut down and people stayed close to home them. Global oil futures briefly traded in negative territory due to a lack of space to store the oil glut. Some oil-producing countries have cut production in an effort to support prices, and some of that production is back online, but not all of it.

Oil production and refining capacity in the United States has also not fully recovered to pre-pandemic levels. And because prices are even higher in Europe, some US and Canadian refineries that would normally supply the US market with gas are exporting gasoline to Europe.

Many oil companies were slow to ramp up production, despite the high price oil could fetch, instead using these skyrocketing profits to buy back their own stock in an effort to boost their stock price. ExxonMobi (XOM)announced plans to buy back $30 billion of its stock, more than its total capital spending budget for the year.

— CNN’s Matt Egan and Michelle Watson contributed to this report.