Breaking News Emails
Gasoline is expected to jump 10 to 20 cents per gallon in the next several days, as rising oil prices and peak driving season create a perfect storm for higher prices.
Industry experts say gasoline prices at the pump should follow the already higher prices in the spot wholesale market. The national average at the pump Wednesday was $3.50 per gallon for unleaded gasoline, up two cents from Tuesday's level, according to AAA's Fuel Gauge report.
Prices in the spot market, which are quickly passed on to the retail market, are 30 to 61 cents higher per gallon than they were June 28, according to Tom Kloza, chief oil analyst with GasBuddy. "Even if it were to stop where it is today, we're looking at a considerably sticker shock for people at the pump," Kloza said.
Retail gas prices were higher a month ago, at $3.63 per gallon but they had fallen and were at $3.47 per gallon last week, according to AAA.
"Short-term, we're going to see the average go into the $3.60, $3.70 range," Kloza said. "You're looking at some markets that were closer to $3 a gallon, like the upper Great Lakes, and they're going to go back up and be closer to $4. Probably every market in the country has gone up at least 30 cents in the wholesale market since June 28."
Gasoline was last above $3.65 per gallon in February, when it reached its highs for the year so far. Gasoline prices are now rising with the steep jump in the price of oil, which started moving higher on concerns about unrest in Egypt.
But there are also concerns about supply, due to reduced output from Libya. Wednesday's big move higher in West Texas Intermediate came after U.S. inventories showed an unusually large drop for a second week, and the biggest two-week drop in inventories in 30 years.
West Texas Intermediate crude futures, for August delivery, rose $2.99 on the U.S. inventory report to $106.52 per barrel, its highest price since March, 2012. Oil prices are up 11.6 percent in two week.
"Refinery output is at the highest it's been since 2007 so I think we'll see a more tempered climb but unfortunately very short term, there's unquestionably a mini spike here," Kloza said.
Kloza does not expect gasoline to keep seeing steep spikes, unless some new geopolitical crisis sends crude prices sharply higher.
(Read More: Oil Rally Not Just About Egypt: Deutsche)
"There is a perception that it's not safe to be short right now, and that means higher prices for motorists," said Kloza.
At the same time, it is summer driving season and refineries pumped out 16.1 million barrels of gasoline and distillates, in the week ended July 5, according to the Energy Information Administration.
"Demand for crude is high because of the high run rate of the refineries, and product demand is very strong as well, but that's typical for this time of year," said John Kilduff of Again Capital. "We had a very strong gasoline demand week—9.1 million barrels per day. That's the first time in a while. It's usually under 8 million, and it's up 2.5 percent from this time last year."
Andrew Lipow, president of Lipow Oil Associates also expects a quick move higher in gasoline. "We've seen pretty good demand. it's the best demand we've seen all year. The futures are going up. The price at the pump is going up. We're going to be headed toward $3.60 as the national average, which is 9 cents higher than where we are today," he said. "The consumer may beet some sticker shock in the next couple of weeks. Its peak demand. It's vacation time. It will go down in the winter."
Kloza said the move higher should be temporary, but it's hard to forecast how long prices will be elevated due to geopolitical concerns.
"I don't think this is a secular move, and we should start panicking about North Africa…It's temporary, and it's a quiet time in the tropic. I guess it could be the bridge to August when we have tropical weather," he said. "I tend to think the fourth quarter will be lower than the third quarter. The third quarter is a crap shoot."
(Read More: Has Oil Hit Its High for the Year?)
Oil refineries in the Gulf of Mexico are sometimes forced to cut back or shut down production when hurricanes approach. Refining operations in New Jersey were impacted last year by Hurricane Sandy.
Kloza said July is usually the period of highest demand, though last year August had the highest demand. "This is much higher than last July," he said. He also said the bad spring weather has pushed some driving and gasoline demand into the summer.
More business news:
- The most expensive colleges in America -- really
- Sorry, students: Higher federal loan still the cheapest