Energy

The Move Back to $5 Gas

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The price for a gallon of regular gas nationwide reached $5 in June. Not adjusted for inflation, this was the highest price in history. Russia’s invasion of Ukraine had cut the global supply of crude. In turn, oil jumped well above $100 a barrel. While the global supply of oil has loosened somewhat since then, the cold winter in Europe and the decision by OPEC+ to drop production could have U.S. gas prices back above $5 a gallon by early next year.

The OPEC+ decision about production has created an immediate threat that prices could spike sharply and quickly. The International Energy Agency presented it more grimly. Its effect could be to tip the world into recession. “With unrelenting inflationary pressures and interest rate increases taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” its experts wrote.

The math about energy prices and recession is tricky. A recession, in general, drops energy demand. However, no matter how difficult the world’s economy becomes, energy demand usually jumps in the winter, particularly in the U.S., Europe, and China.

A gallon of regular nationwide costs $3.89 today. Supply is uneven across the U.S., which shows up in price by state. A gallon of gas costs $6.02 in California. In the case of gas prices, it is not one of 50 states, but rather should be viewed as over 12% of the American population. From the standpoint of the effect of fuel prices on the economy, not all states are created equal.

The gas price is also above $5 a gallon in Hawaii, Alaska, Nevada, Oregon, and Washington.

Several large, based on population size, states in the Midwest have gas prices well above $4. These could easily be pressured above $5 by any extended inventory shortage or spike in oil. This includes Michigan, Illinois, and Indiana.

Only a few states, mostly along the Gulf of Mexico with its oil supply and refinery, are likely immune from $5 gas prices.

Crude is back above $90. It only takes days of bad news about supply to push that much higher. That has been proven this year. $5 gas could be just around the corner.

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