The latest data from the U.S. Energy Information Administration showed that the average cost for Regular gasoline in America rose by eight cents over the past week to $2.85 per gallon. That was the 16th weekly gain in a row and the highest reading since May 2019. Regionally, the cheapest gas in the country as of this writing can be found in Mississippi, where a gallon of Regular costs just $2.57 on average, while residents of California as usual have to pay the most in the continental U.S. for Regular ($3.85 / gallon). The rapid rise at the pump is due to a combination of factors, including the continued improvement in the coronavirus crisis that is allowing business activity restrictions to be gradually lifted and in turn road traffic (gasoline demand) to pick up.
The rebound in the price of oil has also contributed to the uptick at the pump, with the price for West Texas Intermediate crude recently eclipsing $66 per barrel. That is a 2-year high and quite the reversal from last April’s period of extreme volatility when the spot price briefly dipped into negative territory. Another driver of the uptick in energy prices is the broader “reflation trade” that has gained momentum since the election and contributed to a general uplift in all commodities prices. Weakness in the U.S. dollar has exacerbated this since most commodities are priced in dollars, but as we have argued before the greenback could be set to rebound as America continues to lead globally in terms of the vaccine rollout, and should in turn enjoy a swifter economic recovery. An additional reason we could see a short-term reversal is that hedge funds’ bullish long positions in oil, gas, and other petroleum products now outnumber bearish short bets by a ratio of nearly 6 to 1. Looking ahead, though, the upward pressure on energy prices should resume later this year once the economy fully reopens. However, it may take some time for road traffic to fully return to pre-pandemic levels due to lingering consumer reluctance, as well as fewer people regularly commuting to work due to a growing and lasting preference for jobs that can be done remotely (from home).
Sources: Econoday, U.S. EIA, GasBuddy, Reuters, Indeed, FRBSL