Gas Jumps Toward $5

Oil prices are near $95 a barrel. Bloomberg reports that number may race above $100. Based on how oil and gasoline prices rise in tandem, a gallon of regular gas should be about $5. (These states have the highest and lowest gas taxes.)

The primary reason that oil prices will rise to a much higher level is supply cuts by Saudi Arabia and Russia, two of the largest suppliers in the world. The United States is also on this list but cannot pump enough oil to offset these declines. Presumably, Saudi Arabia wants to add more money to its national treasury. The Russian decision is more geopolitical.

The $96 price is up from $67 in June. The current average price for a gallon of regular nationwide is nearly $3.90. According to CNN, “Gas prices have jumped by five cents a gallon in the past week alone.”

Gas prices reached $5 for the first time last June. Russia’s invasion of Ukraine cut supply. China’s economy was doing well. China is the world’s largest consumer of crude, and therefore demand rose.

U.S. oil production is near an all-time high. Crude has been released from the Strategic Petroleum Reserve, a huge oil reservoir the government keeps for emergencies.

What does $5 gas mean? First, household budgets will be damaged. This is particularly true of lower- and middle-class households. This cuts discretionary spending, which, in turn, threatens the upcoming holiday season. Some retailers make all their profits, based on sales, in the fourth quarter.

Other industries hit hard by high fuel prices include airlines and trucking.

At $5 a gallon, gasoline prices raise the specter of recession. Goldman Sachs said a few days ago that the chance of a recession in the near term had dropped to 15%. With gas at $5 a gallon, that forecast is wrong.

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