High gas prices have been stressing out Americans in recent weeks. According to the website of the American Automobile Association (AAA) that tracks gas prices, the national average price of regular gas is at $3.285, which is roughly a dollar higher than the $2.250 price recorded in the same period last year.
The highest recorded average price of regular unleaded gas was $4.114 in July 2008. A recent report by GasBuddy predicts average U.S. gas prices to exceed $4 per gallon next year.
The company made the prediction in its 2022 Fuel Price Outlook report while admitting that the COVID-19 pandemic and viral variants were making gas price forecasting “more challenging.” In the months of May and June 2022, GasBuddy predicts average gas prices nationally to be in the range of $3.50 to $4.06 and $3.43 to $4.13 respectively.
The reasons cited for gas prices exceeding $4 per gallon are “pandemic recovery and rising demand before relief, or additional oil supply arriv[ing] later in 2022.”
For the entirety of next year, the national average gas price is expected to rise from the 2021 level of $3.02 to $3.41.
Relief is in sight though. GasBuddy also predicts average gas prices to fall under $3 by the 2022 holiday season. While most American cities might see gas prices peak at around $4 per gallon, cities in California, like Sacramento and San Francisco, could see prices climb above $5 per gallon. But despite higher prices, GasBuddy is not sounding any alarm. Instead, the company sees it as a possible positive sign.
“While Americans are likely to see higher prices in 2022, it’s a sign that the economy continues to recover from Covid-19. The higher prices go, the stronger the economy is. No one would love to see $4 per gallon gasoline, but we’ll only get there on the back of a very strong economy, so it’s not necessarily bad news,” Patrick De Haan, head of petroleum analysis at GasBuddy, said in a newsletter. Only when additional oil supply enters the market around the end of 2022 will there be a cooling down in prices.
In the report, GasBuddy points out that oil prices could be impacted by President Biden’s attempts to shift the nation away from internal combustion engine vehicles. The spread of COVID-19 variants will also create “turbulence” in the oil markets.
Since gasoline is derived from crude oil, fluctuations in the price of oil and downward logistics will inevitably affect gas prices as well.
A major trigger of high volatility in gas prices is extreme weather. In 2017, hurricanes Irma and Harvey caused fuel disruptions in Florida and Texas causing gas inventories to fall drastically. It took several months for inventories to recover. This year, the Colonial Pipeline outage also strained supplies.
“There is no national emergency gasoline supply, and significant events have the potential to challenge both fuel supply and prices… Due to the pandemic, some refinery capacity has also been lost due to a steep drop in demand in early 2020, leading to a smaller margin of error and less breathing room should a major outage, weather event, or pipeline issue constrain supply,” the report warned.
In a report issued by the U.S. Energy Information Administration (EIA) in December, the agency also predicted lower pieces next year. “We forecast that retail gasoline prices will average $3.13/gal in December before falling to $3.01/gal in January and $2.88/gal on average in 2022,” the agency said. In November this year, U.S. regular gasoline retail prices averaged $3.39 per gallon, which was the highest monthly average since Sept. 2014.