JPMorgan predicts $6 gasoline by the end of the summer
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JPMorgan says consumers are already experiencing a pinch at the pump due to record high gas prices. It could get worse. JPMorgan predicts that the national average will rise to $6 by August and reach $6.20 per gallon for regular gasoline. JPMorgan stated that these price increases could “pose substantial upside risks” if they become reality. [the firm’s]Forecast inflation According to AAA, the national average price for one gallon of gasoline was $4.593 Friday. This is a new record. The prices have risen 48 cents in the past month and are $1.55 more than last year. The average price of gasoline in all 50 states is above $4. California has a statewide average at $6. “With expectations of strong driving demand — traditionally, the US summer driving season starts on Memorial Day, which lands this year on May 30, and lasts until Labor Day in early September — US retail price could surge another 37% by August to a $6.20/gal national average,” JPMorgan said Tuesday in a note to clients. Although the main factor behind the rise in gasoline prices is an increase in oil prices, it’s just one of many factors. Pricing is also affected by marketing and taxes. On Friday, West Texas Intermediate crude oil futures (the benchmark U.S. oil product) traded at around $112 per barrel. That brings the total gain over the past year to about 50%. Although Russia’s invading Ukraine has caused turmoil on global energy markets crude was already rising prior to this war. The pandemic saw a drop in demand for petroleum products, which caused producers to reduce their output. This followed many years of poor returns and low commodity prices that led to underinvestment. The result is that demand has increased while supplies have remained limited, which has led to higher prices. The economy’s decades-high levels of inflation are due to rapidly rising energy prices. According to government data, gasoline inventories fell by 4.8 millions barrels in Wednesday’s week-end ending Mary 13. The U.S. Energy Information Administration stated that inventory was approximately 8% less than its five-year average. In anticipation of busy summer driving seasons, inventory typically rises in the spring. However, the U.S. has lost its refining capabilities and Russia is no longer producing petroleum products. The world now faces a competition for these refined products. JPMorgan observed that East Coast gasoline inventories are currently at their lowest point since 2011. According to JPMorgan, higher-than-normal oil exports play a significant role. “If exports persist at this elevated pace and refinery runs—already near the top of the range for reasonable utilization rates—fall within our expectations, gasoline inventories could continue to draw to levels well below 2008 lows and retail gasoline prices could climb to $6/gal or even higher,” the firm said. — CNBC’s Michael Bloom contributed reporting.
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