Gasoline Prices Will Continue to Rise

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A convenient rule-of-thumb regarding gasoline pump prices is that for every $1.00 increase in the price of a barrel of Brent crude, the pump price will rise by $0.025. Today’s average price of gasoline is $3.628 according to the AAA Fuel Gauge Report. That’s $0.33 a gallon more than a month ago and $0.11 a gallon higher than a year ago.

But following the rule-of-thumb, the average price should be about $3.80 a gallon. Earlier this year the price of gasoline fell significantly below where the rule says it should be and it’s now in the process of catching up.

The glut of crude oil at Cushing offers no help because it cannot yet flow easily to the Gulf Coast to moderate the cost of Brent. For gasoline prices to fall, Brent prices need to fall and that is not likely to happen any time soon.

Brent trades today at just over $118 a barrel, a premium of more than $21 a barrel to WTI, and that gap, which fell to around $16 a barrel earlier this year is widening again, with Brent rising more quickly. Not a happy scenario for U.S. consumers.

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