Gas prices (NG=F, RB=F) are moving higher as more Americans prep their travel plans for Spring Break and the summer. GasBuddy Head of Petroleum Analysis Patrick De Haan joins Yahoo Finance to discuss the upward trends in gas and oil prices (CL=F, BZ=F).
"Americans are getting out more: the [solar] eclipse is a week away, but spring break travel is also happening. All three of those — demand, refinery maintenance, and the transition to summer gasoline — is all boosting prices, and it probably will continue another couple weeks yet before we plateau," De Haan says.
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- We've seen sharp rises in the cost of fuel overtaking oil and an unusual move in the market, drivers are forking out more than a quarter more now for a gallon of gas than they did a month ago, with some analysts saying, we could see gallon at $4 by May. For his view, let's bring in Patrick De Haan, Gasbuddy's head of petroleum analysis.
Patrick, it is always good to have you on the program. So this one's interesting, Patrick, unleaded gasoline I was reading 3.54 a gallon on average across the country on Wednesday. "The Journal" was pointing out it's up 3% from a year ago, Patrick, 14% than at the start of the year. What is driving this exactly?
PATRICK DE HAAN: Well, this is all seasonal, very expected. Three main reasons though from the seasonality boosting prices refinery maintenance happens at this time of year, almost every year. Refinery maintenance then also limits how much refineries can produce. That's happening at the same time that much of the nation, in fact, all the nation is switching to cheaper-- or excuse me, more expensive summer gasoline from cheaper winter gasoline, which has more butane. And demand is also going up.
Americans are getting out more, the eclipse is a week away, but spring break travels also happening. All three of those demand refinery maintenance and the transition to summer gasoline is all boosting prices, and it probably will continue another couple of weeks yet before we plateau.
- How far are we going to go then? We're talking $4 a barrel?
PATRICK DE HAAN: Yeah, I don't think we'll quite get to $4. Yeah, maybe 3.60 to 3.90 a gallon, somewhere there. I mean, oil prices have been rising in the background too. That's something that we'll have to keep an eye on here over the next couple of months.
OPEC maintaining a very delicate balance of production driving oil up to $82 to $83 a barrel. But I think we're going to stop short for now. There could be a caveat or hurricane, an additional geopolitical strife that we may have to concern with that could eventually push prices to $4. But I think that's going to be the exception if it does happen this summer, not the norm.
- Any kind of upside risk to that call though, Patrick?
PATRICK DE HAAN: Oh, certainly without a doubt. As I mentioned, some of those caveats, some of the unknowns, certainly OPEC as well. Now, if the Fed does start to cut interest rates, that could start to heat the economy back up, it could push demand up.
There is a case that if the Fed starts cutting interest rates, depending on how consumers react to that, we could see growth and demand push gas prices a little bit closer to that $4 a gallon mark, or a major hurricane that could happen in August or September, and anything undeveloped, especially in Russia's invasion of Ukraine.
Now Ukraine's been fighting back, attacking Russian refineries. And there's only a finite amount of global refining capacity. So if that continues, that could also push the argument a $4 a gallon gas more towards reality.
- Patrick, you've listed a number of seasonal factors. There's geopolitical factors, but of course every time gas goes up, the Biden administration is watching this one closely, especially in an election year. If we get closer to that $4 a gallon level or if we pass that, is there a possibility of tapping into the SPR, the Strategic Petroleum Reserves? In what's the capacity of that right now, just given how depleted it already is?
PATRICK DE HAAN: Well, the SPR is back north of half full. We're at about 363 million barrels, the SPR has gone up virtually every week for the last few months. I really think the Biden administration is not going to tap it, unless there's a massive spike in the price of oil.
Again, it is a Strategic Reserve, there's a strong argument that it was utilized last time, Russia's invasion of Ukraine causing oil to jump to 130, it was used then. But I think they're going to resist the temptation to use the SPR, knowing that it's not just the SPR that will have to lower prices, but it's also refineries turning that oil into gasoline, that's the wild card refineries.
Don't necessarily have to churn out gasoline, diesel, and jet fuel, so it could depress prices. But again, I don't think the administration is going to use that, simply because they've been so focused on increasing the SPR ahead of the election. Either way, there's going to be politicians on both sides of the aisle that are going to start pointing fingers one way or another.
- And Patrick, I'm interested. We always talk about gas prices nationally, I'm also always interested to get your take on what's going on, just kind of regionally, Patrick, any stark differences there-- east, south, west?
PATRICK DE HAAN: Yeah, absolutely. The west often gets roasted when filling up. California's back above $5 a gallon. They have a very unique setup though in California. They're cut off from really a lot of the rest of the nation. They have a declining number of refineries that is tasked with keeping up with demand.
And keep in mind, they have their own blend of gasoline mandated by the Air Resources Board, which is the only state that can supersede EPA. So they have all these rules, high taxes carbon programs like cap and trade.
California's always among the highest. In fact, much of the West Coast also is above average, simply because they don't have the pipelines to connect each other, all these regions to the refineries that would be necessary. So the West Coast always takes the cake with the highest gas prices.
