July 4th Gas Prices Hit Seven-Year High, with More Increases Expected This Summer

The national average price for a gallon of gasoline stood at $3.12 on Thursday, according to AAA. That is nearly a dollar more than drivers paid at the same point last year, and it sets up the most expensive July 4th weekend at the pump in seven years. Analysts say the climb is not finished, and that the price could rise another 20 cents or more before summer ends.

The direction of travel is unusual. Patrick De Haan, head of energy analysis at GasBuddy, said gasoline prices have not kept rising into the summer since 2008, when oil surged to about $145 a barrel. This year West Texas Intermediate crude is up about 54% since January, reaching as high as $76 a barrel, and gasoline has followed it higher.

De Haan expects a plateau within three to six weeks, probably after an increase of 10 to 25 cents. He admitted that is hard to pin down given the state of the economy. Prices normally peak in April or May, he said, but this year is abnormal: GDP numbers are accelerating into the summer, and so is demand for fuel. Peak driving season, usually tied to Memorial Day and July 4th, could stretch further into the summer, and many Americans are expected to return to their offices and daily commutes in the fall.

John Kilduff, a partner at Again Capital, said he does not expect demand to fall off the way it typically does. In his view the pandemic has altered demand patterns, with people avoiding mass transit and keeping pressure on gasoline supplies. The post-holiday relief at the pump that drivers are used to seeing, he said, is not coming, and he described it as shaping up to be a long, hot summer in terms of what people pay.

Oil itself moved higher again Thursday. Reports said the Organization of the Petroleum Exporting Countries was weighing a smaller supply increase than expected. OPEC+ was discussing a 400,000 barrel per day increase rather than 500,000, and the group extended its meeting into Friday. West Texas crude futures rose 2.4% to settle at $75.23, the highest settle since Oct. 3, 2018. Brent crude, the international benchmark, gained 1.6% to settle at $75.84.

Andy Lipow, president of Lipow Oil Associates, said gasoline is ticking up as crude rises and global demand recovers. He said OPEC+ has been reluctant to restore production as demand returns, in order to draw down world inventories. The group is also concerned that Iranian oil could come back to the market and that the delta Covid variant could dent demand, so it is keeping a tight rein on output and does not want a repeat of last year.

Tom Kloza, head of global energy research at OPIS, expects the national average for unleaded to reach about $3.35 within 60 days, with some places in the western U.S. hitting $4. California already has prices above $4 a gallon. Kloza sees momentum for crude to go higher, along with more pricing power and more aggressive pricing by retailers, even if demand does not return to 2019 levels. In July and August of 2019, he noted, demand ran 9.5 million to 9.9 million barrels a day.

Current demand is below that mark but well above last year. The Energy Information Administration reported U.S. gasoline demand of 9.1 million barrels a day last week, down from 9.4 million the week before, and compared with 8.6 million a year ago. What to watch next is the outcome of the OPEC+ meeting and whether demand holds up through July and August.