Extreme Heat Driving Up Gas Prices as Demand Surges

Posted: August 7, 2023 9:30 am

Gas prices have surged over the last several days and economists are putting part of the blame on the recent heat wave for the dramatic increase. Here is a look at how the heat is driving up the prices at the pump.

Gas Prices Soar to New Highs

While inflation has started to cool across the U.S., gas prices are taking a completely different trajectory in recent weeks. The prices of gas have climbed to nine-month highs over the last week as refineries are having difficulty dealing with the challenges dealt by the extreme heat that has gripped the nation.

According to the latest data from the AAA, the national average for a gallon of regular gasoline inched up 30 cents over the last month to land at $3.83 this week.

Refineries experience challenges when temperatures soar into the triple digits, making it more difficult to produce the gasoline needed to power the country. The loss of supply is coinciding with an increase in demand as more travelers take to the road during the busy summer road trip season.

It is not unusual for refineries to experience widespread outages as Mother Nature cranks up the thermostat. Consumers experience the results of the outages by paying more for fuel. These increases are threatening to mitigate some of the progress that has been made in bringing inflation under control.

Reduction in Oil Exports Also to Blame

An increase in global oil prices and reduction in exports are also to blame for the surge in gasoline prices. U.S. oil prices have increased by 22% since the middle of June. Meanwhile, Saudi Arabia announced earlier this week its plans to extend its oil supply cuts for an additional month while warning that they could reduce this allotment even more in the fall.

In addition, Russia also recently announced that it will reduce its oil exports by 300,000 barrels each day.

Like the U.S., extreme heat in the Middle East is also coming into play and impacting the price of fuel. Some countries have been forced to use oil to meet the high demand for air-conditioning as the heat is not letting up throughout the region.

The triple digit temperatures disrupt the process of gasoline production. The normal process involves heating crude oil to temperatures of up to 1,000 degrees and then cooling it. However, it becomes more challenging to cool the product when the outside temperature soars higher and higher.

In addition, the extreme heat also slows down the regularly scheduled maintenance operations at the refineries.

Diesel Prices Also on Upward Trajectory

Regular gasoline prices are not the only element in play. Diesel prices are also on the upswing. This increase is being blamed on refineries not being able to run at full capacity because of the weather. This is particularly problematic for an industry that has seen capacity drop in general over the last few years.

The increase in diesel prices impacts a number of industries, including trucking and boating. The higher cost of transportation impacts consumers through the cost of everyday goods. Do you want to know why the cost of groceries has increased so dramatically lately? Part of the reason is due to the rise in diesel fuel.

According to AAA, retail diesel prices have gone up by 31 cents per gallon over just the last month. Economic experts are predicting these prices to continue to inch upward.

The silver lining is that economists are predicting that the wholesale price of gasoline will begin to flatline in the coming weeks. Additionally, fuel demand generally decreases in September as the summer travel season comes to an end. This will also help to bring prices down as demand drops.

However, forecasters warn that the onset of the peak of the Atlantic hurricane season could spell more trouble for fuel prices. All it takes is one major hurricane churning through the Gulf of Mexico to disrupt the production of the many refineries in the region, driving prices up once again.

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