As winter gives way to spring and COVID restrictions begin to lift, many people are contemplating a road trip this summer. Travel during the pandemic has been a dream when it comes to the cost of fuel, but the promise of more people hitting the road has already driven gas prices higher, a total of .53 cents since January 1st. How bad will it get? If you’re planning a road trip this summer, here’s how much gas will cost.

Drags on Supply

According to Gas Buddy, the travel and navigation app, upward pressure on gas prices are a result of increasing demand as well as a decision from OPEC to extend production cuts in order to keep prices from falling. In addition, frigid weather across Texas in February caused a shut down of refineries that further stifled supply. Add to that the upcoming annual shut down of refineries to change over from winter to summer blends, and you have a number of drags on the supply side converging just as demand is picking up. The result has been an average national pump price that stands at $2.77 and could rise to $2.87 as early as next week. As demand picks up, prices could climb as high as $3.00.

$3.00 gas represents a 38% increase over the 2020 average price of $2.17 per gallon. But those prices were an aberration as a result of a plunge in demand caused by the pandemic. The 2019 average price was $2.60, off of which an increase to $3.00 is a more palatable 15%. But how long will it last, and could it go even higher?

Poker Playing Producers

It’s important to note that the supply side restraints are temporary and artificial. It’s not as if there isn’t enough oil to be extracted. The world is awash in oil, and as major automobile manufacturers change over to electric vehicles in the years ahead, that surplus will grow, as demand drops.

Temporary refinery shut downs can only keep reality at bay for a short period. Even if refiners decide to keep some facilities shut down in an anticipation of a future drop in demand, the whole strategy goes out the window when OPEC decides to lift its production cuts and flood the market with oil. Like steely-eyed poker players, producers around the globe are eyeing the demand curve and deciding the right moment to make their call and scrape in the pot.

How Much Gas Will Cost This Summer?

Gas prices may rise as high as $3.20 a gallon in July and August as the pandemic is brought under control and Americans take to the road again, but it may not be so bad. Much of the increase has been front loaded by refinery shut downs in February-April, so as those refineries come back online, the increase in demand may be offset by an increase in supply, which would keep gas prices level through the summer.

Then in autumn expect to see another drop in pump prices as demand levels off and producers move to rake in profits.

Sources

DeHaan, Patrick. “Fuel Price Outlook 2021”, Gas Buddy, accessed 22 February 2021, Website

“EIA Expects Gasoline and Diesel Prices to Increase as US Economy Recovers”, US Energy Information Administration, 25 January 2021, Website

Hurtibise, Ron. “Gas Prices Rise to Nearly 2-year High, and They May Get Worse,” Sun Sentinal, 8 March 2021, Website

Image credit

Photo by Wassim Chouak on Unsplash