Brent crude rose above $110 recently. Cold weather should push that price higher over the next several weeks. If so, it would be a primary factor in the sharp rise in the price of gasoline in the United States, which has topped $3.50 for an average gallon of regular among most of the largest states. The ongoing rise may undermine consumer spending, if it has not done so already.
The averages price of a gallon of regular is higher than $3 in all 50 states. Several energy-rich states and those close to refineries had prices closer to $3 two months ago. However, even states near to Gulf refineries have prices above $3.15 now. This includes Texas, Louisiana, Alabama and Mississippi.
With the exception of Texas, almost all the largest states by population have gas prices above $3.50. In New York, California and Connecticut, the level has crossed above $3.70. In Michigan, Illinois and Pennsylvania, the price is above $3.60. Among them, these states have more than 40% of the U.S. population. So the gas price problem could become acute throughout most of the country soon, for half or more of all Americans.
Most economists believe that, at some point, gas prices become high enough to begin to erode consumer spending. High prices pushed consumer confidence down in the spring to 2012 and then again in the late summer of 2013. The heavy driving season that begins on Memorial Day is only three months away. And that likely will spur demand and offset what might have been some relief to gas prices as cold weather passes.
Several signs indicate that consumer confidence has already begun to slip from levels in late 2013. The Thomson Reuters/University of Michigan consumer sentiment data showed a final reading of 81.2 in January, down from 82.5 in December. Retail sales have been poor, although some of that has been blamed on frigid weather.
Overall, consumer activity has been helped in the past year by rising home prices and a falling jobless rate. But the rate of home price appreciation has started to stall, and unemployment levels well above 6% do not match the less than 5% that usually is a marker of a full economic recovery.
Based on the current trend, more than half of Americans may soon pay the $3.50 price. And it is hard to make the case that will not bite into what people have to spend beyond what they have for necessities.