Gas prices have risen this summer, posing a challenge for the Fed

Your eyes are not deceiving you: gasoline prices are rising again. On Wednesday, the national average for unleaded gasoline was $3.88 per gallon, according to AAA, the highest level since October.

That’s well below its peak in June 2022, when the average briefly topped more than $5 a gallon after Russia’s invasion of Ukraine, shrinking global oil supplies and skyrocketing fuel costs. But they are still well above historical averages, even in the summer, when prices tend to rise.

It has been a slow but steady increase. The price of a gallon of gas has risen about 20 percent since the beginning of the year and more than 8 percent since June 1, according to AAA. By comparison, after the Russian invasion of Ukraine in February, gas prices rose by more than 40% in less than four months.

Rising gas prices represent a headache for elected officials and consumers, especially less affluent Americans, and pose a challenge to Federal Reserve policymakers, who have sought to rein in rapid inflation over the past 18 months.

Here’s what you need to know about what caused the recent surge at the pump and where gas prices could go next.

What is the reason for the increase?

Gas prices are primarily affected by oil prices in commodity markets, which means they can be affected by a variety of factors, including geopolitics, weather, and the mood of financial investors.

Crude oil prices have jumped in recent months. Since June 1, the price of the US benchmark, West Texas Intermediate, has increased by about 30 percent.

One reason is that Saudi Arabia and Russia have reduced production until the end of 2023. Another reason is that despite China’s economic downturn, it has continued to import oil at a high rate to mitigate geopolitical risks and support its manufacturing and transportation industries, Clay Siegel said. Director of Global Oil Services at Rapidan Energy Group.

It also contributed to the unusually hot summer in the Northern Hemisphere. Akash Doshi, head of commodities at Citi Research’s North America division, said the heat has reduced production capacity at refineries.

And the Strategic Petroleum Reserve — which President Biden has tapped to help lower oil and gas prices — is Historically low. The government has Delayed reserve restocking Because prices are rising, this is unlikely to happen until prices are lower than they are now.

However, prices may fall.

In most states, fall brings with it a switch to cheaper blends of gasoline that contain more butane. Gas prices also tend to fall during the fall as demand declines after the peak driving season.

Global economic growth is too It is expected to slow in 2024Which means there will be less demand for oil, pushing gas prices lower, Mr. Doshi said.

Some analysts say production cuts from Saudi Arabia and Russia may not continue into the new year, which could remove another pressure point.

The cuts, which drive up prices by restricting supply, have already been profitable for the world’s major oil producers, known collectively as OPEC+. This means, Siegel said, that there is little need for oil producers to extend the cuts for a long time, which could lead to hyperinflation in energy prices and lower consumption.

“They should look at today’s oil market through a ‘mission accomplished’ lens,” Siegel said.