Why Gas Prices Might Not Come Down Anytime Soon
Higher gas prices have been hitting consumers just as inflation is near multiyear highs. Here's why gas is so expensive right now.
Consumer price data for Aug. 2021, released on Sep. 14, showed that U.S. retail inflation rose 5.3 percent (annualized) during that month, and core inflation (which excludes food and energy) rose 4 percent. Whereas inflation eased from Jul. 2021, it was still high. Higher gas prices are contributing to the rise in inflation. Why is gas so expensive right now?
Gas prices in the U.S. are a function of both domestic and international factors. The biggest driver for gas prices is crude oil prices. Like all commodities, crude oil prices depend on supply-demand dynamics.
How are gas prices determined in the U.S.?
In the short term, market sentiment, refining costs, and refiner margins (reflected in crack spreads) are also factors in gas prices. Specific events or changes, such as the Colonial Pipeline attack or a change in taxation, can also affect them
Why are gas prices going up?
Gas prices have been going up in the U.S. due to crude oil prices rising. WTI is back above $70, and crude oil prices were higher as of Sep. 14 on fears that another storm could impact Texas oil production.
The U.S. oil and gas industry is also reeling from the impact of Hurricane Ida. Over the last couple of years, the U.S. has emerged as a key energy exporter. Trump saw boosting energy exports as a quick way to bridge the country’s massive trade deficit.
Why is gas so expensive right now?
Gas is pricey now that crude oil prices are higher, and higher energy prices are boosting inflation. As energy prices go up, so do transportation, logistics, and input costs for a lot of industries.
When will gas prices come down?
The near-term outlook for crude oil looks bullish. The economy's continued upward momentum bodes well for global oil demand. Whereas Goldman Sachs expects Brent crude oil prices to rise to $80 by the end of 2021, considering their current momentum, that could happen earlier. Higher crude oil prices would mean higher gas prices in the U.S. in 2021.
Another factor to watch would be the global COVID-19 situation. If the situation worsens and lockdowns are reintroduced, crude oil prices and gas prices in the U.S. could come down. Also, if the Fed decides to begin tapering at its September policy meeting, it could pressure risk assets, including commodities such as energy.