Crude oil prices have surged past $92 a barrel, causing gasoline prices to hit a record high for 2023. [Source]
On Monday, the national average for gasoline was a staggering $3.88, according to figures from AAA. Although the current national average has yet to match the peak of $5.02 a gallon seen in June 2022, it’s worth noting that gas prices are now 20 cents higher than at this time last year.
According to AAA, gas prices have crossed the $4 threshold in eleven US states, including Colorado, Oregon, and Arizona. California, in particular, has experienced a significant surge, with the average price for regular gas reaching $5.69 a gallon — an increase of 49 cents in just the past month. [Sources]
The rise in fuel prices isn’t exclusive to gasoline. Diesel, vital for transporting American goods, has seen a sharp increase of $0.23 from a month ago and is now priced at $4.57 per gallon.
Such increases are likely to impact the cost of consumer goods, adding to the financial strain on everyday Americans.
Jet fuel has also felt the pinch. Prominent American airlines, including United, Delta, and American, have voiced concerns over dwindling profits due to rising fuel costs. This might lead to more expensive airfares, particularly impacting the conservative demographic that often prioritizes fiscal responsibility.
Two main factors are driving this surge in energy prices: US crude oil prices and geopolitical events.
With West Texas Intermediate crude oil reaching $92.20 per barrel on Monday, its upward trajectory is evident. Its global counterpart, Brent crude, has seen a significant 30% rise over the same period, registering at $94.43 per barrel.
Saudi Arabia and Russia have further reduced oil production, drawing scrutiny from many, especially conservatives, towards OPEC+ and particularly Saudi Arabia.
Saudi Arabia’s recent decision to extend its unilateral production cuts for an additional three months, coupled with Russia’s move to reduce its exports by 300,000 barrels daily until year’s end, tightens the global oil supply even further.
These reductions are in addition to the cuts OPEC+ announced in the last quarter of 2022.
The wider economic ramifications of this surge in energy prices are clear, especially when the Federal Reserve is making concerted efforts to control inflation. Claudia Sahm, a former Federal Reserve Board economist, aptly summarized the situation: “These are geopolitical events that are driving energy prices.”
According to data concerning the nation’s oil reserves, total US crude oil inventories, including the Strategic Petroleum Reserves (SPR), have just dropped below 800 million barrels.
This level was last observed in 1985, shortly after the formation of the SPR. This means that the US now has only 46 days worth of supply in total reserves, marking an all-time low. For context, just three years ago, the nation boasted a record 92 days of supply in inventories, which is 100% more than the current levels. Such a drastic reduction in reserves represents a precarious situation for the nation.
On Monday, Citigroup informed its clients that oil prices might briefly exceed the $100 per barrel mark due to geopolitical factors. However, the bank also expressed doubt over the sustainability of the current $90 price, predicting it will drop to below $70 per barrel by the second quarter of 2024.
In a recent discussion with CNBC, Treasury Secretary Janet Yellen expressed her belief that energy prices will stabilize soon. She also noted that gas prices have fallen from the highs of the previous summer.
The ongoing spike in gas prices underscores the complex interplay between geopolitical events and economic stability.