Gasoline could top $5 a gallon this summer, causing more pain for consumers

Gasoline prices are a wildcard for consumer wallets this summer, as tight supply and uncertainty in Ukraine could drive fuel costs sharply higher.

Gasoline prices are climbing towards $5, and they seem set to stay high even beyond the peak driving season in July. Already, Yardeni Research projects households are spending the equivalent of $5,000 a year on gasoline, compared with $2,800 a year ago.

In a normal summer, gasoline prices rise into May and then peak in the middle of the month. Summer driving season kicks off at the end of the month on Memorial Day weekend, with the largest number of drivers hitting the roads in July — just after the Fourth of July holiday.

And with inflation running at more than 8%, drivers are unlikely to catch a break this year. After dipping in April, the price of gasoline has been rising this month to record levels as oil prices climb. Gasoline experts see prices rising to $5 or more per gallon, and JPMorgan analysts are even forecasting a national average of $6.20 per gallon in August.

The national average for unleaded gasoline was at a new high of $4.56 per gallon Wednesday, according to AAA. That is 4 cents higher than Tuesday’s price and a 16-cent per gallon jump in just the past week. Last year at this time, the price was $3.04 per gallon.

“The goal posts are moving constantly. I think we probably have somewhere in the neighborhood of a one-in-three shot of the national average getting to $5,” said said Patrick DeHaan, head of petroleum analysis at GasBuddy. “We’re definitely heading a little higher short-term, but we’re still waiting t o see if the EU sanctions Russian oil. They talked about it. That could boost the momentum of getting close to $5.”

For the first time ever, the average price for unleaded gasoline was $4 per gallon or above in all 50 states this week, AAA data shows. Due to taxes and other factors, prices vary widely — with California at an average $6.05 per gallon, and Florida at an average of $4.50.

Tom Kloza, head of global energy research at OPIS, said he expects the average price to rise north of $5 nationally by peak driving. He also expects states and the federal government may drop taxes on gasoline to soften the blow to consumers.

“I think gasoline is special. And the Biden administration is absolutely in a tizzy trying to figure out how to mitigate against still higher numbers,” Kloza said. “I do think we could see a $5 handle, and I don’t think we go much above that. You really do have a demand destruction when you get above these numbers.”

Kloza said he expects consumers would cut back on driving if gasoline gets too costly, and that would cool the price somewhat. Analysts say an economic slowdown could also slow price gains.

In the futures market Wednesday, the RBOB gasoline contract fell 5.5% to $3.72 per gallon after Target’s quarterly results raised worries over the health of the consumer. That follows on an earnings miss by Walmart Tuesday.

“It’s a reminder of how much air is in this price,” said John Kilduff, partner of Again Capital. “There’s worry about the economy and there’s…