Another week, another record high for gas prices. And there does not appear to be any immediate relief in sight.
The average price of ordinary unleaded gas rose a quarter in the past week to a record high of $ 4.86 on Monday, AAA said. That’s an increase of 59 cents more than a month ago and $ 1.81 more than a year ago.
“After a heady week of gas prices rising in almost every possible city, town, state and territory, there is more bad news on the horizon,” said Patrick De Haan, head of oil analysis at GasBuddy. “Now it does not seem if, but when, we hit the psychologically critical national average of $ 5.”
Many states are already over $ 5 per. gallon. The 10 best states with the most expensive gas are: California ($ 6.34), Nevada ($ 5.49), Hawaii ($ 5.47), Oregon ($ 5.41), Washington ($ 5.40), Illinois ($ 5.40 ), Alaska ($ 5.37), Washington, DC ($ 5.40). $ 5.06) and Michigan ($ 5.05).
Most people blame higher oil prices, but the real reason for higher prices may surprise you. There is a lack of refining capacity.
How much does oil affect gas prices?
About half the price of a gallon of gas comes from oil, and oil prices have remained close to the highest levels since 2008, in part due to a lack of supply and rising demand.
After being burned in 2020, as economies around the world shut down and oil demand plunged, oil producers have been slow to increase production. The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC +, decided last week to accelerate oil production slightly. It may help curb oil prices, but it is unlikely to move the needle on gas prices.
This is because “increasing crude oil supply does not do much to address the global shortage of refining capacity,” said Natasha Kaneva, JPMorgan’s head of global commodities.
What is refining and what does it have to do with the price of my gas?
Refining breaks down crude oil into products we use every day. On average, U.S. refineries produce from a 42-gallon barrel of crude oil about 19 to 20 gallons of gasoline; 11 to 13 gallons of distillate fuel, most of which is sold as diesel fuel; and 3 to 4 gallons of jet fuel, according to the Energy Information Administration.
What consumers see stated as the oil price is what the refineries pay for oil. Refineries then convert the oil into products and sell them. Refinery companies’ prices for these fuels are closer to what consumers pay. And those prices are closer to $ 250 to $ 280 per barrel, said Daniel Milan, managing partner at Cornerstone Financial Services.
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“It’s what we’re looking at because it’s what the consumer pays for, and it’s more than double the price of a barrel of oil,” he said.
Why is there a lack of refining capacity?
When COVID-19 hit and the world economies closed, demand for oil and gas fell, so many companies closed their factories. Others were affected by bad weather. Some companies stopped investing in refineries due to uncertainty about how the transition to green energy would affect their business. When Russia invaded Ukraine, several refineries in Russia were taken offline.
All this has led to less refining capacity. Existing refineries operate at almost maximum capacity, but they have not been able to keep up with demand, and refinery margins have expanded, says John Mayes, vice president of energy consulting firm Turner, Mason & Co.
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The difference between the purchase price of crude oil and the selling price of finished products, or so-called crack spread, closed up 2.7% on Friday to $ 60.54, near a record high level, EIA said. The spread of cracks is seen as an indicator of the short-term profit margin of oil refineries.
Why do not we reopen or build more refineries if they are so profitable now?
“It takes many months of planning and work and money to restart one, and companies need to be sure there is long-term demand,” Mayes said.
And with the push for electric vehicles, many companies may not believe demand will be there, some analysts said.
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Two million electric cars were sold worldwide in the first quarter, an increase of three quarters over the same period last year, according to the International Energy Agency’s May report.
What does this mean for consumers and gas prices?
In order to better measure where gas prices are heading, consumers should keep an eye on refinery prices, not oil prices and not OPEC + production increases.
“The size of production increases is irrelevant if there is not enough capacity to distill that crude oil into pure products,” Kaneva said.
She predicts that the national average for gas will rise to $ 6.20 per gallon. gallon this summer.
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The only respite for drivers is at some point that they will refuse at record high gas prices and demand will fall and prices will follow.
“But we are not there yet,” said Andrew Gross, AAA spokesman.
Medora Lee is a money, market and personal finance reporter for USA Today TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Why did gas prices rise again and why is there no relief in sight?
