Gas prices are the talk of Wall Street amid speculation that fuel costs could reach $6 later this year.
What’s behind the latest gas price mania?
Well, according to recent data, the national average for a gallon of gas is sitting at about $3.83. This represents the highest level for gas prices on Labor Day and Labor Day weekend since 2012, according to the American Automobile Association ().
“Normally we would be seeing prices coming out of a robust summer travel season more along the lines of $3.50,” said AAA spokesperson Andrew Gross.
There are apparently several factors at play contributing to elevated gas prices. These include a hotter-than-usual summer, slightly receded oil production and elevated fuel demand. The latter cause in particular is being effected by Hurricane Idalia. As large swathes of Americans hit the road to avoid the storm, some upwards fluctuations in gas prices have been unavoidable.
“If you live in an area that was directly impacted by Hurricane Idalia, you will likely have some regional price spikes just because there’s some distribution issues,” said Gross.
The storm also had the potential to affect oil refineries located near the Gulf of Mexico. However, according to recent reports, these facilities were mostly spared of the hurricane’s wrath.
So, with that in mind, what could send gas prices upwards later this year?
3 Reasons Why Gas Prices Could Hit $6 This Year
- High oil prices. The International Energy Agency ( ) recently released a report stating that this summer’s elevated oil prices are the result of increased oil demand across the world. “World oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” the report reads. As of this writing, oil is trading at around $86 per barrel. As elevated temperatures continue to wear on oil refineries, prices may be liable to continue rising longer than expected this year.
- Falling oil production. Some major oil producers have been slashing production in efforts to keep prices high. This includes Saudi Arabia, the second-largest oil producer. This summer, the country cut oil exports by 1 million barrels per day. According to the country, this reduced production is expected to continue through the end of September, although officials also hinted that the production cut could be “extended or deepened” as necessary.
- High temperatures. The relationship between the oil refinery process and temperature is well-defined. Higher-than-expected temperatures can cause substantial disruptions to refining and transportation infrastructures. Unfortunately, this year has been historically hot. Indeed, according to NASA, July 2023 is now on record as the hottest month in the global temperature record, dating back to 1880. This year is also already on track to be one of the top five hottest years ever recorded. As temperatures stay higher for longer, expect oil production — and thus gas prices — to feel the heat.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.