Gas prices hit a new record high of $4.37 per gallon

Gasoline prices hit a new record on Tuesday just as Americans are entering peak summer driving season. The national average price for a gallon of gas hit $4.37, according to AAA, eclipsing a previous record set in early March.

The largest increases are coming in Michigan, New Jersey, Connecticut, Kentucky and Indiana, according to AAA. In dollar terms, the priciest states for gas are in the West: California, Hawaii, Alaska, Nevada and Oregon have the most expensive gasoline, with California’s gas averaging $5.82 per gallon.

Gasoline prices are going up even though the price of crude oil — its biggest input — has fallen this week, to $105 per gallon.

A squeeze on oil refineries, which turn crude oil into gasoline and other products, is behind the latest price high. Refinery capacity in the U.S. has gradually shrunk, with the nation losing about 1 million barrels per day of refining capacity since before the pandemic.

“Why can oil move down but wholesale gas prices move up? Because they’re different. They may be similar, but refining is the kink in the hose, and we’re down 1 [million barrels per day] refining capacity vs early 2019,” Patrick DeHaan, head of petroleum analysis for GasBuddy, said on Twitter.

A ban on oil and gas imports from Russia, which sent some refined products to the U.S., is also contributing to the shortage.

“The lack of refined product, finished product and intermediates coming out of Russia created a shortage for sure,” Michael Sinclair, CEO of HF Sinclair, a petroleum refiner, said on a call with investors this week. “I don’t see any signs of it ending sooner or well. So, I think that the draw on U.S. refining capacity is going to be very strong.” 

Jennings said that the drop in capacity as well as crude oil supply since before the pandemic amounts to 2.5% of world consumption.

“It’s a big number,” he said. “I think that we can expect, assuming the economies stay reasonably strong, that the commodity prices and particularly the prices of our products are going to be relatively high.”

According to Reuters, distillers have shifted output to create more diesel and jet fuel to meet demand in Europe. That means they’re producing less gasoline at a time of year when gas output should normally rise to prepare for summer’s busy driving season.

According to the Energy Information Administration, gasoline stocks in the U.S. dropped by 2.2 million barrels last week, while gasoline demand rose from 8.74 million barrels a day to 8.86 million.

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