8 Reasons Gas Prices Are Going Up

Source: By Doug Whiteman, Money Wise • Posted: Tuesday, April 16, 2019

Gas may hit $3 or even $4 where you live. Here’s why.

It’s not your imagination: Gas prices have been rising fast, toward $3 a gallon in many parts of the country and even to an average $4 or more in parts of California.

And we’re still a ways from seeing the worst of it, because auto club AAA says prices may not peak until late May. At this rate, some families may be forced to dip into their emergency savings to keep their cars fueled.

What’s pumping up prices at the pump? Here are eight reasons you’re paying more for your fill-ups.

Double exposure of Fire and refinery plant , concept crisis a large oil refinery fire and emergency fire case.
Phonix_a Pk.sarote / Shutterstock Fires and other problems are knocking refineries out of commission.

Gas prices are climbing partly because fires and other problems have been knocking out major U.S. refineries that make gasoline from oil.

In March, fires disrupted production at America’s third-largest refinery, near Houston, and at a big facility in Los Angeles. Other plants have had shutdowns for unexpected maintenance, particularly in California.

With all the setbacks, domestic refineries turned out 9.8 million barrels per day of gasoline during the last week of March — down from the 10.1 million barrels a day that were produced in late March 2018, the Energy Information Administration says.

Refinery issues in California can send prices spiking at that state’s gas pumps almost immediately, because most California gasoline is produced within the state to meet tough anti-smog standards.

2. OPEC is pumping less oil

Black oil pump jacks in the desert of Bahrain
Philip Lange / Shutterstock
Oil pumps line a section of desert in OPEC member Bahrain.

Rising oil prices are another factor for higher gas prices. A big reason the cost of crude is going up is that the world’s oil-rich countries have been pumping less of the stuff.

The OPEC countries and others have been working to reduce production by 1.2 million barrels per day, which has tightened the supply of oil and pushed prices up.

OPEC members had scheduled an April meeting to discuss whether to keep their production cuts in place, but they decided to punt until June.

Saudi Arabia’s energy minister recently told CNBC he’s “leaning toward” holding down oil production through the end of the year.

3. Americans are hitting the roads

Happy Couple Driving on Country Road into the Sunset in Classic Vintage Sports Car
EpicStockMedia / ShutterstockbWarmer weather means more driving, more demand for gasoine — and higher prices.

The warmer temperatures of spring have arrived, leading more Americans to drive off on road trips and planned vacations.

As more people fuel up, the increase in demand for gasoline causes prices to go up. (Just think back to what you learned in school about supply and demand.)

AAA says motorists itching to get out there and go someplace are already buying gas at a “summer-like” rate. If that’s you, better make sure you’ve got a cash-back credit card that rewards extra cash for gasoline purchases.

In early April, demand for gas nationwide was about 6% higher than it was during the same time a year ago, according to Energy Information Administration data.

4. Summer gas is pricier

At a gas station multiple options are available for the type of gas to put in your vehicle and in this scenario the cheapest type of regular is selected since gas prices are rising and high.
Joshua Rainey Photography / Shutterstock.Summer blends of gasoline are more expensive to produce.

Some people love sipping on that blend of ice tea and lemonade known as an Arnold Palmer during the summer months. Gasoline has its favorite summer blends, too, though they’re costlier and more complicated than mixing together a couple of soft drinks.

Gas sold in summer contains more expensive ingredients for curbing toxic air pollutants and seasonal smog.

Estimates of the cost difference to produce summer gasoline range from a penny per gallon more to 15 cents per gallon extra.

The changeover to summer gas also is responsible for some refinery outages during the spring, because plants must briefly shut down to prepare to make the seasonal blends.

5. Ethanol got washed out

A 'Road Closed' sign partially covered in flood water lit by the evening sun
AC Rider / Shutterstock. Flooding disrupted production of ethanol.

The massive floods that recently hit the Midwest have helped to drive gas prices higher by creating a shortage of ethanol, an ingredient in most gasoline sold in the U.S.

The flooding damaged supplies of corn, which is used to make ethanol. Even worse, it knocked out facilities in Nebraska, Iowa and South Dakota that produce at least 100,000 barrels of ethanol a day, Reuters reported.

And worse still, rail lines got flooded, which prevented corn from being transported to the plants for refining, and stopped shipments of ethanol from getting out.

American gasoline producers turned to Brazil for ethanol, to help get them through the crunch — causing prices for Brazilian ethanol to go up. (There’s that supply-and-demand thing again.)

6. Venezuela oil is being squeezed

Caracas, Miranda/Venezuela - February 2nd 2019: Demonstrators rally in support of EU's decision to recognize Venezuela's National Assembly President Juan Guaido
Ruben Alfonzo / Shutterstock. The strife in Venezuela is contributing to higher prices.

The political and economic crisis in Venezuela has led the U.S. to impose sanctions, which have squeezed the South American country’s oil industry.

Venezuela is one of the largest oil producers in the world. Or it was, anyway.

U.S. officials say Venezuela’s oil output has been dropping steadily, by about 50,000 barrels a month, Reuters reported. That’s helping to strain world oil supplies and raise fuel prices.

Oil production in Venezuela plunged by more than a quarter during March alone, according to OilPrice.com.

7. The dollar is looking dubious

Fallen Dollar.
ImagePixel / Shutterstock. A falling dollar tends to bring rising gas prices.

The value of the dollar has an inverse relationship with gas prices. When the dollar’s value declines, the cost of gasoline increases.

That’s because a weaker greenback makes imported oil cost more.

Morgan Stanley has forecast that the value of the dollar will decline from now through 2020, which may not be very helpful for motorists.

The dollar has been zigzagging against other currencies in 2019, and some experts believe it’s working its way lower. Each dip puts upward pressure on oil and gas prices.

8. Traders think energy prices will rise — so they do

Help to novice traders. Woman pointing finger at screen computer
Viktoriia Hnatiuk / Shutterstock. When traders believe prices will go higher, it becomes a self-fulfilling prophecy.

Speculative commodities traders are partly responsible for rising gas prices.

If they think oil is likely to become more valuable, they buy more of it — and cause prices to rise on commodities markets. Oil companies see those higher prices as an opportunity to raise their prices, and the cost of gasoline eventually goes up, too.

Crude oil has been trading at its highest levels in months, but here’s some hopeful news: The Energy Administration Administration predicts oil prices this summer will be $7 a barrel lower than last summer.

The EIA also is forecasting that this summer’s U.S. average price for regular-grade gasoline will be $2.76 a gallon, down from an average $2.85 per gallon in the summer of 2018. So, hang on! Before long, the spring spike in gas prices will be nothing but a bad memory.