Gas prices rise again, predicted to soon reach $5 mark

Gas prices continue to increase in the region and may change the mind of people considering traveling this summer.

Countless gas stations in the region on Wednesday raised their prices more than 30 cents to as much as $4.79.

GasBuddy said the average price for a gallon of gas in Dayton was up 11 cents from Tuesday to Wednesday to an average of $4.78 a gallon, Springfield increased 34 cents to $4.79 and Cincinnati increased by 19 cents to $4.75.

“It’s awful,” said Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks fuel prices. “I would not have expected at the start of the year that we’d be seeing gas prices so high, but a lot has changed since the start of the year and unfortunately, I don’t think it’s going to get much better for quite some time. I think it’s going to get worse before it gets better.”

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Motorists throughout southwest Ohio pay as much as nearly $1 per gallon more compared to a month ago, according to GasBuddy.

“It’s just absolutely mind-blowing to see how quickly prices have gone up,” De Haan said.

Rises in prices locally were mirrored on the state and national level. In Ohio, prices Wednesday were up 15 cents from the day before to reach a record-setting $4.61 per gallon, 67 cents more than a month ago, according to AAA. Nationally, the price of gas rose to a record-setting $4.67 Wednesday, a 5-cent increase from the day before and a 48-cent increase from a month ago, AAA said.

This week’s price hikes were caused by Monday’s news that the European Union agreed to cut Russian oil imports by 90% by the end of 2022, according to Jonathan Wolff, a Miami University associate professor of economics and an expert on inflation, unemployment, and monetary and fiscal policy

“The EU imports about a quarter of their oil from Russia, and so to put on a total ban this week and also to remove insurance on Russian tankers, that’s going to significantly reduce the global oil supply,” Wolff said. “It’s going to make it very difficult for Russia to supply oil.”

Both De Haan and Wolff said odds are rising that more pain at the pump is on its way.

With sanctions in place there’s a 75% chance that motorists will eventually see the national average reach $5 per gallon by June 17, a rough calculation based on a number of possible influences and a “moving target” that likely will change, De Haan said.

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GasBuddy saw this week’s surge in prices coming last Friday because “the data was there,” he said. It urged motorists on Monday to get gas in Ohio, Kentucky, Indiana, Michigan, Illinois, West Virginia and Florida before prices spiked there on Tuesday and Wednesday.

“That’s how much of an easy call it was because wholesale prices has skyrocketed last week, stations hadn’t passed it along and I know what they’re making, I see what they’re paying and I see what they’re charging at the street level,” he said. “They were making next to nothing after fees, and so it was an easy call to say stations are going to be forced to pass it along, so they did (Tuesday).”

Gas prices have increased for months on end with little relief along the way. There are four primary reasons for that, Wolff said. The first two are a decline in reserves because of the COVID-19 pandemic and an increase in demand from the end of the COVID recession, he said. The third reason is a decline in supply as companies forecast a transition to renewable energy sources and the fourth reason is a rush to fill the void left by Russian supply, Wolff said .

This week’s spike was a continuation of factors worsening, De Haan said. During Memorial Day weekend 2015 and 2019, when prices were considerably lower, consumption was 9.7 million to 9.9 million barrels a day. This year, amid higher prices, consumption likely was 700,000 barrels below that, which is “a pretty noticeable drop,” he said.

But even amidst a large drop in consumption, refineries are still struggling to meet that lower bar, De Haan said.

“Gasoline inventories declined again last week and that’s as refineries are churning out at 95% of capacity, so we’re on a very slippery slope here,” De Haan said. “Refineries are barely keeping their head above water. All it takes is one little issue to completely derail the train and cause prices to surge.”

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The average price for a gallon of gas is already above the $6 mark in California ($6.19) and above the $5 mark in Hawaii ($5.44), Nevada ($5.34), Washington ($5.25), Oregon ($5.24), Alaska ($5.23) and Illinois ($5.13), according to AAA.

Wolff predicts the national average price of gasoline at the pump will surge above the $5 mark by Independence Day. He said he has “no reason” to doubt projections suggesting prices could reach $6 a gallon this summer.

“To see lower prices, we need to either see a decrease in demand or an increase in supply,” he said. “At least in the short run, I don’t believe an increase in supply is likely.”

Wolff said he doesn’t believe there is one specific “breaking point” where people and communities start to make increasingly dramatic economic or lifestyle changes, but he does believe that continued increases in price will almost certainly drive the United States into a recession, if one isn’t already underway.

“In the short run, it is very difficult to change your demand for energy,” he said. “You might trade in your old car for a newer, more fuel efficient one, but the miles you drive on a week-to-week basis can only change so much.”

Motorists wondering why gas stations who have fuel in their underground tanks don’t wait longer to raise the price should keep in mind those stations purchase that fuel on contract with a supplier.

“As the supplier’s costs change, those price changes will be passed down to the station franchisee.” he said. “Though they might not have paid the higher cost on the previous shipment, their next delivery will carry a new price which they will begin to factor in today. They might also price in anticipated disruptions, changes in quantity supplied, et cetera.”

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