Looks Like That (Bit of) Relief at the Gas Pump Is Over

The price of oil just hit a two-month high and could push gasoline up again

Man filling up at the gas pump
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If you've enjoyed a slight decline in gas prices recently, don't get too comfortable. Oil prices, which account for about half the price of gasoline, are on the rise.

Key Takeaways

  • When oil prices fell last November, gas prices followed suit and consumers felt some relief from one aspect of inflation.
  • But since then, oil prices have climbed back as omicron fears fade and major world producers’ supply remains low.
  • Higher oil prices could send gas prices higher again, some analysts warn.

A barrel of West Texas Intermediate crude was back above $80 a barrel Thursday after tumbling from that range to $65.57 on Dec. 1, soon after the World Health Organization declared omicron a “variant of concern” and raised fears of more government restrictions on movement and business activity.President Joe Biden also announced that the U.S. would release 50 million barrels of oil from its strategic reserve to ease prices at the pump.

Consumers did get some relief, with the national average price of a gallon of regular unleaded gas dipping to $3.28 at the start of the year from about $3.42 in early November, according to AAA, even while the overall 12-month inflation rate rose to 7% in December, the fastest pace in 40 years.

But that respite could prove temporary as oil prices climb again. They’ve added 26% since Dec. 1, partly on expectations for strong demand and moderate supply. And gas prices are already beginning to tick up, rising 2 cents to $3.30 per gallon Thursday. 

“Oil prices have staged a spectacular recovery after a brief swoon when the news on Omicron first emerged,” said Douglas Porter, BMO’s chief economist, in a commentary. It’s “a fast rebound which will soon reverse any temporary relief in some headline price metrics.”

Paul Ashworth, chief economist for North America at Capital Economics, predicted gas prices will show a rise in next month’s consumer inflation report. 

Although its price outlook is still tame, the Energy Information Administration on Tuesday also raised its prediction for U.S. regular retail gasoline in January to an average of $3.28 per gallon, from $3.01 in December

The swift rise in oil prices stems partly from growing confidence that the fast-spreading omicron variant won't cause mass shutdowns or last a long time, which would depress demand. Federal Reserve Chairman Jerome Powell predicted in his renomination hearing on Tuesday that omicron’s effect on the economy would be “short-lived.”

On the supply side, the world’s major producers failed to reach their pumping quotas last month. The latest S&P Global Platts survey showed 14 out of the 18 members of the Organization of the Petroleum Exporting Countries with quotas fell short of their targets, including Russia, its largest producer. Social upheaval in oil-producing Kazakhstan since the start of the year has also taken a toll on supply.

Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com.

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