Why Are Gas Prices So High?

Key Takeaways

• Gas prices were high all summer and remain elevated
• The price of oil hit a 10-month high of over $92 a barrel this week
• The crude market’s rise likely lifted overall inflation last month.

Oil costs have been rising all summer. Intense heat has slowed down the refineries. Saudi Arabia has cut its production, and the price of crude oil is up. All this to say: If you were planning a fall road trip, you might want to factor some extra gas money into the budget.

Why are gas prices up so high and how long will they stay there? Let’s get into it.

What’s up with gas prices?

Oil prices account for about half the price of a gallon of gasoline. Then after that, it’s the refining costs that turn oil into gasoline (and other products). Oil prices have been high for a variety of reasons in recent months.

First, production cuts by Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC), in tandem with increased demand, have driven prices up. That increased demand came, at least in part, from a busy summer for air travel.

Other factors at play here include high summer temperatures. AAA estimated that extreme heat shut down 500,000 barrels per day of refining capacity this summer. In other weather news: hurricanes pose a big-time threat to refinery territory as well and could further impact production (and prices).

Cooler temperatures may help calm things down. Goldman Sachs forecasted a national average of $3.60 through 2024, though analysts differ on whether fall weather will cause the usual gas price drop this year. There are still a lot of questions about OPEC+ policy and what impact that will have going forward.

What are the broader implications of high gas prices?

Obviously anyone fueling up a vehicle is feeling the higher prices. But even if you don’t drive, you’re paying for the high cost of fuel every time you buy an airplane ticket, or shop at the grocery store, or really shop anywhere — since so much is moved around by trucks.

Not only that, but we have inflation to contend with. Federal Reserve officials will likely remain wary about the outlook for inflation following this week’s CPI report. The New York Times reported that overall price increases sped up, mostly because of that spike in gas prices in August. The Bureau of Labor Statistics said gas prices were the “the largest contributor” to the overall spike in inflation in August. Experts are debating whether these latest inflation numbers will result in another interest rate hike this month.

The bottom line

We’re watching several numbers in the coming weeks: the price of oil, travel data (which will help determine demand), and any fluctuations in gas production due to hurricanes. If these factors drive gas prices higher, we’ll be keeping a very watchful eye on whether high energy costs accelerate inflation. That, in turns, could cause the Fed to raise interest rates again in September and/or November.