Gas prices are rising again, with the national average for unleaded gasoline at $3.88 per gallon, the highest level in nearly a year. This is far below the peak in June 2022, when the average was above $5 a gallon after Russia invaded Ukraine. However, it is still higher than historical averages, even for summer, when prices rise. The price of a gallon of gas has risen around 20% since the start of the year and more than 8% since June 1, according to AAA. Gas prices in California have increased over 10% in the last month, while in Georgia and Florida, they have fallen to $3.36 and $3.67, respectively.

High gas prices challenge elected officials and consumers, significantly less affluent Americans. The Federal Reserve has faced challenges reinforcing rapid inflation over the past 18 months. However, gas prices don’t include “core inflation,” a measure closely monitored by the Fed that excludes energy and food prices due to their volatility. Despite this, energy prices are crucial in shaping consumer sentiment and expectations. Powell emphasized the significance of higher energy prices, stating that sustained, higher costs can impact consumer spending. He provided details on the recent spike in gas prices and potential future trends.

But what is causing this increase? 

Oil prices on commodity markets primarily influence gas prices, which can be affected by geopolitics, weather, and investor moods. Crude oil prices have risen nearly 30% since June 1, reaching over $91 a barrel, the highest level since November 2022. This is due to production cuts by Saudi Arabia and Russia and China’s continued high oil imports to mitigate geopolitical risks and strengthen its manufacturing and transportation industries despite the economic downturn, according to Clay Seigle, director of global oil services at Rapidan Energy Group. The sweltering summer in the Northern Hemisphere has reduced refinery production capacity, causing a recent increase in gasoline prices in California. California accounts for one-tenth of U.S. gasoline consumption and typically has the highest prices in the country due to its unique blend requirements. At least four refineries in California have experienced problems in recent weeks, causing service interruptions. The state’s environmental regulations also tighten supplies. President Biden has utilized the Strategic Petroleum Reserve to reduce oil and gas prices. Still, the reserve’s historical low has led to delayed restocking due to high prices and is unlikely to be replenished until prices decrease. Fall brings a shift to cheaper gasoline blends with more butane, with California making this change in October. Gas prices typically drop during this time as demand retreats after peak driving season. Global economic growth will slow in 2024, reducing oil demand and reducing gas prices. Some analysts suggest that production cuts from Saudi Arabia and Russia may not continue into the new year, potentially removing another pressure point. Oil producers, collectively known as OPEC Plus, have already profited from the cuts that have boosted prices by restricting supply. Therefore, there is no need for extended cuts, which could lead to excessive energy price inflation and reduced consumption. Oil producers should view the current oil market as a “mission accomplished.”