Why Gasoline Prices Are Rising

But gasoline prices often lag oil prices. In the past six months, the price of oil has risen by $0.56/gallon, while the price of gasoline is up $0.50/gallon. In other words, the vast majority of the gasoline price rise can be accounted for by the rise in the price of oil.

I will explain other factors influencing the price of gasoline below, but why are oil prices rising? Is Biden responsible for that?

There are two factors that have driven up the price of oil. One is that demand collapsed last year as pandemic measures were implemented and people stopped traveling. The price of oil plummeted. That, in turn, ended up idling 3 million barrels per day (BPD) of U.S. oil production relative to a year ago.

As the end of the pandemic nears, oil demand is bouncing back. Supply doesn’t respond as quickly, and therefore that puts pressure on prices. If you think Biden is responsible for hastening the end of the pandemic, then you can place some blame for the rise in oil prices on him. But that’s because the economy is beginning to recover, which is a good thing.

Second, unlike a year ago, OPEC and Russia recently decided to cooperate by extending most of the current output cuts. Despite some recovery in demand, Saudi Arabia kept in place a 1 million BPD cut. That decision sent oil prices sharply higher, and will likely ensure additional gains in gasoline prices.

Vitol Group, the world’s largest independent oil-trading house, pointed the finger directly at OPEC. Mike Muller, head of Vitol’s Asia division, said “The market is telling us that OPEC+ have control. We’re going to get a stock-draw that is going to accelerate through the second quarter and that’s why the market is doing what it’s doing.”

Factor 2: Loss of Refining Capacity

Beyond oil prices, what other factors can impact gasoline prices? One of the most significant is any event that limits refinery capacity. If the crude oil can’t get refined, then gasoline supplies will start to run low. That, in turn, will cause gasoline prices to rise. This often happens when a hurricane is churning through the Gulf of Mexico, but it also happened last month when the winter storm swept through Texas.

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