Joe Biden Should Worry: Gasoline prices across the United States rose this week to their highest levels this year. The average price per gallon reached $3.86, posing concerns about a potential inflation surge. The recent spike, reflecting an increase of nearly 30 cents in just a month, is primarily attributed to a complex interplay of global oil supply dynamics and domestic refining challenges.
While prices remain lower than the record high of $4.62 set in June 2022, they have been steadily climbing, impacting consumers’ wallets and igniting discussions about broader economic implications.
Global Oil Supply Cuts
The surge in fuel costs is closely tied to the global oil market, where prices have been on the rise. Key oil-producing nations, including Saudi Arabia and Russia, have enacted significant supply cuts, causing benchmark crude prices such as Brent and West Texas Intermediate to breach the $80 per barrel mark.
These cuts, largely spearheaded by the OPEC+ alliance, are designed to balance the oil markets and elevate prices. Notably, Saudi Arabia extended its production reduction efforts through September to ensure market stability.
Domestic Challenges
The United States, a significant consumer of gasoline, faces its own set of challenges contributing to the price surge. Extreme heatwaves in July compelled several domestic refineries to curtail operations, taking about 500,000 barrels per day of refining capacity offline. This decline accounts for roughly 3% of the nation’s total capacity for converting crude oil into gasoline.
Oil’s Ripple Effect on Gasoline Prices
Oil prices are a critical determinant of gasoline prices. Despite the fact that the United States is producing more oil than before the pandemic, experts agree that domestic production won’t fully offset the international supply cuts by OPEC+ nations. While U.S. oil production is projected to average 12.8 million barrels per day in 2023, up from 12.2 million bpd in 2019, the decline in international supplies has left a gap that American producers are unlikely to fully bridge.
“It’s important to remember that the U.S. oil industry is composed of independent producers who make decisions based on their own financial standings. While the international cuts might influence U.S. production, it won’t entirely compensate for the global reductions,” Energy Information Administration expert Naser Ameen told The Hill.
Inflation Concerns
As gasoline prices continue to rise, concerns about inflation’s potential resurgence loom large. Rising fuel costs have historically contributed to inflationary pressures. Despite the Federal Reserve’s concerted efforts to manage inflation through interest rate hikes, the recent uptick in gasoline prices has raised the specter of inflation’s “smile” pattern — falling initially, followed by stabilization, and then an upward trajectory later in the year.
While the precise impact of these factors on the economy remains uncertain, it’s clear that the complex interplay between global oil supply cuts, domestic refinery limitations, and consumer demand has resulted in the current surge in gas prices.
Georgia Gilholy is a journalist based in the United Kingdom who has been published in Newsweek, The Times of Israel, and the Spectator. Gilholy writes about international politics, culture, and education.
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