Gas prices topping $4 a gallon this summer are possible - but not expected

By Myra P. Saefong

Most experts predict a 2024 peak U.S. average gas price below $4

Gasoline prices at the pump are set to rise - as they usually do just as the U.S. summer driving season gets underway. But to say the average national price will climb to $4 a gallon is a bit of a stretch.

The average retail price for regular unleaded stood at $3.538 a gallon on Thursday, according to AAA. It was at $3.541 late Thursday morning on the GasBuddy website.

Bloomberg reported this week that AAA said retail gas prices would likely rise to $4 - the highest price since the summer of 2022.

However, Andrew Gross, spokesperson for AAA, told MarketWatch that the motorist group didn't actually predict $4 gas this summer, and doesn't forecast gas prices beyond a week or two.

While $4 is possible under certain conditions, such as surging oil prices and unusually high summer demand, it's also very possible that prices won't reach $4, Gross told MarketWatch.

Price expectations

Other experts said $4, at least in terms of the national average, is a possibility, though not an expectation.

Patrick De Haan, GasBuddy's head of petroleum analysis said "$4 isn't expected, but not impossible either."

He said the April-to-May timeframe is likely to see gas prices peak for the year, with that price peak expected to be in the upper $3 range - around $3.65 to $3.90.

Prices may then "cool off" in June through the rest of the summer, said De Haan.

That means that after a "fairly mundane top [in prices] this spring, summer shouldn't be too bad, and will bring tens of thousands of sub-$3 a gallon prices again" at the retail stations in the fall, he said. And the good news, for now, is gasoline prices are not rising faster than normal, as this chart he provided shows.

Tom Kloza,global head of energy analysis at OPIS, a Dow Jones company, also told MarketWatch that $4 is "clearly not our base case."

He said prices will "almost certainly" be in the $3.50 to $3.80 neighborhood for most of the second quarter, and the third quarter might be similar.

For now, retail gas prices are on an "uptrend" ahead of the Easter holiday, "owing to the change in gasoline formulations we see in the United States during the Spring," said Brian Milne, product manager, editor, and analyst at DTN, referring to a switch among refiners to a more environmentally friendly summer-grade gasoline. Gas prices also get a boost heading into the summer when warm weather "entices" family vacations.

Those "dynamics" could push the national gas price over $4 this summer, said Milne, adding that the economy remains "resilient and consumers appear less concerned over inflation, supporting greater driving demand."

Certainly, "some pockets of the country" will see gasoline top $4 when taxes are factored in but more likely, the national average will stay below $4, he said.

On Thursday, among the states that often pay the highest in the nation, California's price for regular unleaded was already averaging $5.022, while Hawaii was paying $4.686, according to GasBuddy.

Wildcards

Experts said their forecasts for sub-$4 national average prices assume there will be no major surprises, such as weather-related output disruptions and big moves in oil.

There is the "wildcard" of hurricane threats, which could provoke a devastating response, given that more than half of the U.S. refinery output is vulnerable to major storms, said Kloza.

The Atlantic hurricane season runs from June 1 through Nov. 30. AccuWeather said the 2024 season may rank as one of the most active in history. It predicts 20 to 25 named storms across the Atlantic basin, including 8 to 12 hurricanes.

AAA's Gross also pointed out that oil prices are a key factor for gasoline. Oil accounts for nearly 60% of what we pay at the gas pump, he said. And oil's a commodity, with many factors influencing its movement and those are "impossible to predict."

In Thursday dealings, the May contract for U.S. benchmark West Texas Intermediate oil (CL.1) (CLK24) traded at $82.82 a barrel on the New York Mercantile Exchange, poised to end higher for the week, month and quarter.

So far this year, much of the movement in gas prices has been according to the winter-to-spring "template," said Kloza.

Prices for reformulated gasoline (RBOB) futures (RBK24) bottomed on Dec. 13 at just under $1.97 a gallon, he said. If this year "merely adheres to the average move, it targets RBOB prices of over $3 and would push retail up over $4, he said.

But the "preponderance of evidence is that the rally will stall, much as it did in mid-April 2023," said Kloza.

A lot of speculative money in RBOB and cash gasoline "rides these historical waves higher in March and April but as May comes about, there is a risk in holding gasoline contracts too long," he explained. So between May 1 and May 15, there is a "strong tradition" of a 15% to 20% drop in wholesale gas prices.

Kloza expects that by mid-May refinery input will pick up and there will be "plenty of gasoline production." If refinery runs climb above 17 million barrels a day, the downside risk for gasoline prices at that time is "substantial," he said.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-28-24 2048ET

Copyright (c) 2024 Dow Jones & Company, Inc.