After three months of declines in U.S. gasoline prices, Americans should brace for prices to rise again soon.
On Wednesday, regular gasoline was going for an average of $3.83 across the country, according to auto club AAA, five cents up from last week and the first time prices have gone up in more than three months. And that was before OPEC+—a global coalition of oil-producing nations—announced it would begin cutting oil output next month.
Prices rose by a further three cents on Thursday in the wake of the news, and it’s starting to look like it won’t stop there.
Demand for gasoline is rising, and global supply is set to remain limited after the OPEC+ decision, meaning higher prices. And while price increases over the past week have been relatively slow and steady, cutbacks in global oil production around the world could herald a much faster and more dramatic rise.
Why prices have increased so far
The average price of gasoline exceeded $5 a gallon for the first time ever last June—California has seen it surpass $6—as global oil shocks reverberated from Russia’s invasion of Ukraine.
Russia is the third largest petroleum producer worldwide, and while it exported relatively small amounts of oil to the U.S., the disruption caused by the war scrambled global oil markets and sent prices soaring.
Prices began coming back down to Earth in July as demand receded and more supply came into the market in part from the U.S. strategic oil reserves, which President Biden had authorized to tap for up to one million barrels of oil per day back in March.
But that trend may be starting to reverse itself, with demand for gas starting to tick upwards nationwide in recent weeks, according to AAA, while supply remains uncertain.
Oil supply in the U.S. has been hit by an unexpected series of accidents and maintenance work at refineries around the country. A fire and explosion at a BP plant in Ohio last month caused the deaths of two workers and indefinitely shut down operations, and the plant could potentially stay offline for months, the Toledo Blade reported, sending prices rising in the Midwest.
On the West Coast, “a string of planned and unplanned refinery maintenance issues has severely tightened fuel supply in California,” Doug Shupe of the Automobile Club of Southern California told the Times of San Diego last week. The maintenance work has sent gasoline prices soaring from California to Washington state in recent weeks.
Gradual releases from the U.S. strategic oil reserve have helped calm the market, but that can’t go on forever. The reserve now holds 416 million barrels of oil, down from 560 million in April and its lowest level since 1984. The Biden administration had planned on halting releases in October.
But with the latest news from OPEC+ and other threats to global oil supply, the country may just have to keep tapping those strategic reserves.
Why prices could keep rising
Wednesday’s decision from the OPEC+ coalition—which includes Russia and 23 other oil-producing nations—could become the latest threat to stable global oil supply.
The coalition announced that it would cut its collective output limit by 2 million barrels a day starting from November as the group seeks to keep global oil prices at a high level. Biden was quick to criticize the move, calling it “unnecessary.”
Brent crude oil futures were already up over 3% between the OPEC+ announcement and Thursday.
For Biden, high gasoline prices could become a political sticking point with midterm elections approaching next month. U.S. national security advisor Jake Sullivan said that Biden was “disappointed” about the outcome and that the administration was exploring different avenues to keep gasoline prices as low as possible, including continuing to release supply from the strategic reserve.
The White House and the Energy Department may also be considering a ban on all U.S. gasoline exports to shore up domestic supply, Bloomberg reported on Tuesday, although experts have noted that this plan could backfire by creating more disruption in global energy markets, especially in allied European countries dealing with a mounting energy crisis.
Oil prices could also spike when Europe implements a planned ban on Russian petroleum imports starting from December, according to Treasury Secretary Janet Yellen, who warned last month that Europe’s ban carries “a risk” for global crude oil prices.
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