(Combined Sources)- Numerous factors are pushing prices up, with regular gasoline hitting a record $4.87 a gallon Monday according to AAA's survey — up 25 cents a gallon in just the last week.
The national average is expected to hit $5 a gallon within the next two weeks, said Tom Kloza, global head of energy analysis for the OPIS, which tracks gas prices for AAA.
"I think we will reach $5 somewhere between this weekend and Father's Day weekend," he said.
The national average has been rising steadily for the past month, setting 27 records in the last 28 days.
More than one out of every five gas stations nationwide is now charging more than $5 a gallon for regular, and more we are looking at close to $6 a gallon on diesel.
There are 10 states, plus Washington, DC, where the average price is already at $5 or more: Alaska, Arizona, California, Hawaii, Indiana, Michigan, Illinois, Nevada, Oregon and Washington. Several more are within a penny of $5, so those states' prices are likely only a day or two at most from crossing the mark.
That's because there's a number of reasons beside the disruption of Russian oil exports driving prices higher according to Kloza. And making predictions about where prices will go has proved difficult. As school let out and summer travel picks up, so will gasoline demand and price, he said.
"Anything goes from June 20 to Labor Day," Kloza said. "We could certainly see the national average approach $6 on regular gas."
Here's what's behind the record price surge:
Biden revoking the key permit to the Keystone pipeline
Keystone XL, which was proposed in 2008 to bring oil from Canada's Western tar sands to U.S. refiners, was halted by owner TC Energy after U.S. President Joe Biden revoked a key permit needed for a U.S. stretch of the 1,200-mile project.
The Keystone XL pipeline was expected to carry 830,000 barrels per day of Alberta oil sands crude to Nebraska.
TC Energy owns the existing Keystone oil pipeline, which runs from Alberta to the U.S. oil storage hub in Cushing, Oklahoma, and to the U.S. Gulf, along with a power and storage business.
Former U.S. President Donald Trump had approved a permit for the line in 2017. Biden had committed to canceling the project during his campaign and revoked the permit soon after taking office.
By Biden revoking the Keystone XL pipeline permit he has cause America and the America people to be dependent on Russia and other foreign countries for oil and halted the carry of what would have been 830,000 barrels per day of oil from Alberta to Nebraska.
Russia's invasion of Ukraine
Russia is one of the largest oil exporters on the planet. In December it sent nearly 8 million barrels of oil and other petroleum products to global markets, 5 million of them as crude oil.
Very little of that which went to the United States. In 2021 Europe got 60% of the oil and 20% went to China. But oil is priced on global commodity markets, so the loss of Russian oil affects prices around the globe no matter where it is used.
The concerns about disrupting global markets led Western nations to initially exempt Russian oil and natural gas from the sanctions they put in place to protest the invasion.
But in March the United States announced a formal ban on all Russian energy imports. And last week the EU announced a ban on imports of Russian oil by ship, which represented about two-thirds of the oil European nations imported from Russia. Russia's oil is slowly and steadily being removed from global markets.
China lockdowns ending
One factor keeping oil prices somewhat in check has been the surge of Covid cases, and strict lockdown rules in much of the country. That was a major drag on demand for oil.
But as the Covid surge has started to retreat, the lockdowns are being lifted in major cities such as Shanghai. And more demand without increased supply can only drive up prices.
Less oil and gas
"Oil and gas companies do not want to drill more," Pavel Molchanov, an analyst at Raymond James, said earlier this spring. "They are under pressure from the financial community to pay more dividends, to do more share buybacks, instead of the proverbial 'drill baby drill,' which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed."
One of the starkest examples: ExxonMobil (XOM) last month announced first quarter profits of $8.8 billion, more than triple the level of a year ago when excluding special items. It also announced a $30 billion share repurchase plan, far more than the $21 billion to $24 billion it expects to spend on all capital investment, including searching for new oil.
Not only is oil production lagging behind, US refining capacity is falling. Today, about 1 million fewer barrels of oil a day are available to be processed into gasoline, diesel, jet fuel and other petroleum-based products.
State and federal environmental rules are prompting some refineries to switch from oil to lower carbon renewable fuels. Some companies are closing older refineries rather than investing what it would cost to retool to keep them operating, especially with massive new refineries set to open overseas in Asia, the Middle East and Africa in 2023.
And the fact that diesel and jet fuel prices are up far more than gasoline prices shows that refiners are shifting more of their production to those products.
"Economics mandate you make more jet and diesel fuel to the detriment of gasoline," said Kloza.
And with prices in Europe even higher than in the United States, both Canadian and US oil producers have increased exports of oil and gasoline to the continent. That has also limited the US supply.
Strong demand for gas
But supply is only part of the equation for prices. Demand is the other key, and while it's very strong right now, it's still not back to levels before 2020.
The US economy had record job growth in 2021, and while those gains have slowed, they remain historically strong. Demand is getting another boost as the many employees who have been working from home for much of the last two years return to the office.
The start of the summer travel season on Memorial Day weekend likely sparked the typical annual increases in demand for gas and jet fuel. US airlines all report very strong bookings for summer travel, even with airfares climbing above pre-pandemic levels.
The end of the Omicron surge and the removal of many Covid restrictions is encouraging people to get out of the house for more shopping, entertainment and travel.
"Come hell or high gas prices, people are going to take vacations," said Kloza.
Commuting may remain down slightly. Many who plan to return to the office will be there only three or four days a week, and the total number of jobs is still a bit below 2019 levels. But there will be periods, most likely this summer, with higher demand for gas than during comparable periods before the pandemic, Kloza predicts.
"I was expecting gas prices to break the record," Kloza said. "Now it's a question of how much we break the record by."