Gas Prices in U.S. Rise for a Second Week After Refineries Shut down

Source: By Isabella Simonetti, New York Times • Posted: Monday, October 10, 2022

The gains could raise pressure on policymakers, but analysts say the higher prices may be short-lived as refineries in California and Washington restart production.

Gas prices in California and in other Western states, including Nevada and Arizona, jumped after several refineries in the region closed.
Caroline Brehman/EPA, via Shutterstock

Gasoline prices in the United States are creeping higher, reversing a monthslong streak of declines and chipping away at a potent talking point for the Biden administration, which had been emphasizing its success at easing pressure on drivers since the summer.

Though the uptick has followed a rise in crude oil prices, analysts pointed to two new factors that are also pushing gasoline higher — a loss of refining capacity in California and Ohio, and rising demand in recent weeks.

The national average price of regular gasoline stood at $3.891 a gallon on Friday, climbing for more than two weeks, according to data from AAA. That’s lower than the record of about $5.02 reached in June but still higher than usual for this time of year.

Prices have made a particularly big leap in California. At about $6.39 a gallon, prices are close to the state’s June record of $6.44. Gas prices there and in other Western states, including Nevada and Arizona, jumped after several refineries in the region closed for maintenance.

The rise, should it last, could increase pressure on the White House to act quickly to bring prices back down. A spike in gas prices, which followed a surge in crude oil and other energy costs after Russia’s invasion of Ukraine, became both a political liability and a policy headache as consumer prices rose across the board.

President Biden, who over the summer responded to the increase in gas prices by chiding energy companies for profiteering on consumers, released oil from strategic reserves and encouraged Saudi Arabia to produce more oil. Gas prices eventually started to decline, as global oil prices tumbled amid rising concern about the slowing global economy and demand eased.

As the streak of declines stretched to 98 days, the White House regularly pointed to the drop and the savings it would offer to drivers.

The recent jump means White House officials have been pressed to address the issue again. Brian Deese, the director of the National Economic Council, said on Thursday that energy companies needed to lower prices at the pump.

“If you look at the gap between wholesale and retail prices, it has come down,” he said during a press briefing. “It hasn’t come down enough — right? — but it has come down.”

Analysts say the refinery shutdowns will be temporary, and the fact that Americans tend to drive less in the winter could keep prices from climbing as sharply as they did in June. But a recent rebound in crude oil prices, which rose nearly 17 percent this week as the world’s major oil producers agreed to cut production, means predicting what’s next will be difficult.

“This is not the Biden administration’s fault, but they know that if gas prices are back at $4.50 on Election Day, they’re in trouble,” said Tom Kloza, a founder of Oil Price Information Service, a price reporting agency, referring to the November midterm elections.

Aside from the political consequences, a sustained rise in gas prices could affect how businesses and consumers view the economy. In July, falling gas prices were a key part of the better-than-expected reading of the Consumer Price Index, offering a brief glimmer of hope to those looking for signs that inflation has peaked.

Among the West Coast refineries that have shut down is one in Washington State run by Phillips 66 and two near San Francisco that are run by Valero and Chevron.

Not every shutdown is predictable. A fire at a BP-owned refinery near Toledo, Ohio, shuttered that facility in September. It may not reopen until early 2023, Bloomberg News reported late last month, citing unnamed sources. In Ohio, the average price of gas rose to $3.939 a gallon on Friday from $3.609 a month earlier.

Chevron and Phillips 66 said they do not comment on the day-to-day operations of their refineries. BP and Valero didn’t immediately respond to questions about the refineries. The refineries do not typically release much detail about closings or when they expect to reopen, analysts said.

Prices in California and other states have fallen slightly since Gov. Gavin Newsom said last week that the state could start producing its winter blend of gasoline early, which is cheaper for refiners to produce since it contains fewer of the additives that protect against environmental conditions in the summer. The introduction of the winter blend, paired with the potential for slowed demand in fall and winter driving seasons, could help bring prices back down, said Devin Gladden, a spokesman for AAA.

On Friday, Mr. Newsom said on Twitter that he would call a special session of the California Legislature to weigh “a windfall profits tax” on energy companies that are profiting from high prices, a move that some Democratic lawmakers in Washington have also called for. Britain announced a similar tax on the “extraordinary” profits of oil companies in May.

On Wednesday, the group known as OPEC Plus, which includes Saudi Arabia and Russia, said that it would slash oil production by two million barrels a day, a decision that drew an immediate condemnation from the Biden administration. On Thursday, Mr. Biden told reporters that he was “disappointed” by the decision, and the White House also said it would release more oil from the Strategic Petroleum Reserve, the country’s stockpile of crude oil.

Though oil prices have climbed sharply this week, the recent increase in gas prices began in September, well before the OPEC Plus decision.

The overall impact of the announcement remains “a big maybe,” Mr. Gladden said. It could lead to a short-term rise in prices, but whether or not it is sustained depends on how energy investors react to the cut, he said. Analysts have noted that several OPEC Plus members are already unable to meet production quotas.

Crude oil prices account for more than half of the cost of gasoline. The price of West Texas Intermediate crude oil, the U.S. benchmark stood at about $93 a barrel on Friday, well below its peak of $130 in March but still up more than 23percent since the beginning of the year.

“This really hasn’t been about crude,” Mr. Kloza, the Oil Price Information Service founder, said of the most recent gain. “It’s been about the inability to refine a lot of that crude for various reasons.”

Mr. Kloza said he did not think an “extraordinary spike” in prices was ahead, particularly one comparable to what consumers experienced earlier in the year. Still, prices are subject to several variables —  many of which, including hurricanes or wildfires that lead to major refinery shutdowns, are unpredictable.

“If we lost one of these big refineries that can run 500,000 barrels a day of crude or more, it can really haunt the markets,” Mr. Kloza said.