Gas Prices Jump Above $3.50 and Rise

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Gasoline prices have started another significant increase. At $3.53 per gallon nationwide, they are above the prices last week, a month ago, and a year ago. The same holds for Premium, which has reached $4.31.

Regular gas prices are nowhere near the $5 level they hit in June 2022, when supplies were interrupted by Russia’s invasion of Ukraine. At the same time, crude oil prices topped $100 a barrel.

Crude prices affect gasoline prices more than any other factor. Today, crude costs $81 per barrel, up from $70 in mid-January. Part of this rise is due to tightened supply, and other reasons are geopolitical. (Oil hits $80 and five ultra-yield energy stocks are top March buys.)

The Gaza-Israel conflict started in October and has made oil traders nervous. Conflict in the Middle East region has severely interrupted oil supplies before. Elsewhere, Ukraine has used drones that target Russian refineries. Russia is among the world’s largest oil producers.

The most important geopolitical issue is a battle between Houthi rebels and U.S. and allied military forces in the Red Sea. One rocket fired by the rebels has already sunk a cargo ship. The path through the Red Sea leads toward the Suez Canal. The rebels continue to fire on ships, damaging some.

About 15% of shipping traffic goes through the Suez Canal, probably higher for oil tankers. By some estimates, Houthi attacks have cut this traffic by more than 40%. Ships have been forced to travel south of the Cape of Good Hope to reach ports in Asia, which can add 10 days to their trips. While this may not add much to the cost of crude worldwide, it can raise the price in parts of Asia. The change in shipping patterns also reflects worry that the Red Sea conflict could explode into region-wide military activity. That could interrupt supply substantially.

At this point, there is little reason for oil prices, and therefore gas prices, to fall. On the other hand, there are several reasons for an increase.

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