U.S. Gas Prices to Go Up Despite Oversupply

U.S. Gas Prices to Go Up Despite Oversupply

An AAA analysis shows that gas prices at the pump increased in 43 states in a single week. Currently, the national average sits at $2.42 per gallon, which marks a 13-cent rise in less than a month and a 30-cent or 14% rise in a year.

Summer Blend Behind the Price Spike

The most visible jumps in prices were in Texas and Indiana where gas prices rose 18 cents over a month. In Kentucky and Michigan prices jumped 17 cents over the same period.

The recent spike should not worry drivers as gas prices routinely head upwards in summer months. According to several reports, the jump is normal for this time of the year, as gas producers are now making the switch from the winter blend to the summer one.

An AAA expert explained that the winter blend is cheaper to make than the summer blend because it has a higher Reid vapor pressure. According to the association refineries on the West Coast started using the summer blend in late February, while those in the Northwest delayed the switch up to Apr. 10. As gas producers are using the lower RVP gas, prices will continue to rise.

The trend may be confusing as the U.S. currently faces a gas oversupply. But because the weather is warming up, people are likely to start traveling more. Producers expect a big spike in demand in June which will reduce inventories and push the price at pump up.

Prices Could Hit the $3 per Gallon

AAA estimates that the national average will hit the $2.70-per-gallon benchmark as early as June. Last year, the national average peaked at $2.38 per gallon. AAA expects several states to see gas prices soar to $3 per gallon by the end of the summer.

These states which will see the largest hikes are mostly on the West Coast, and in a couple of states, the gas is already selling for $3.06 (Hawaii) and $3.01 (California). The cheapest gasoline is at South Carolina pumps ($2.13 per gallon).

Experts say that another reason gas prices will go up this summer is the Organization of the Petroleum Exporting Countries (OPEC). This summer, OPEC members will decide over whether to slash the daily oil output by 1.8 million barrels. If oil producers make the cut, oil prices could further soar as the price of crude will go up.

Analysts, on the other hand, think the scenario is highly unlikely. Fatih Birol of the International Energy Agency noted that the inventories are up, and a price hike will not make any sense. Birol thinks prices could go down following pressure from other oil producers.

The AAA also found that Americans will scrap their travel plans if gas prices go up. Around 60% of drivers said that they would no longer travel far from home if prices continue to climb. The survey also revealed 42% of Americans would go on a vacation, but they will prefer vacationing domestically over international destinations.
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