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  • Writer's pictureTSN Wealth Advisors

Gasoline Prices Heading Higher This Summer - Commodities Update

Crude oil prices have been trending higher over the past few months, resulting in higher gasoline prices. Geopolitical events have prompted supply disruptions in regions of the globe that have jolted energy markets. The anticipation of rising demand during the approaching summer months has also levied additional stress on the markets both domestically and internationally.

Production limits enacted by Russia and OPEC member countries in 2016 have started to limit global oil supplies, thus affecting prices. The benchmark for international oil prices, known as Brent, rose in April, as did the benchmark for domestic oil, West Texas Intermediate (WTI). Both benchmarks were already above forecasted summer prices in April, implying that prices for gasoline could go even higher than anticipated.

Gasoline prices vary from state to state depending on individual state regulations and environmental standards. The cost of refining is higher in such states as California due to required blends in order to qualify for environmental standards.

The average cost for a gallon of regular grade gasoline nationwide as of April 30th was $2.84, already above the EIAs summer estimate of $2.74 per gallon.

Sporadic and infrequent occurrences, such as a major storm, can reduce gasoline supplies in parts of the country leading to short-term price “spikes.” Refining and distribution facilities can also be affected or even close temporarily, creating severe shortages and delivery disruptions. Labor strikes and shortages may also cause production reductions and supply issues.

Regulations affect gasoline prices in some states more than others. California typically experiences some production shortages as refiners switch from fall to summer gasoline blends to adhere to state pollution reduction measures.

Source: U.S. Energy Information Administration

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