The latest data from the U.S. Energy Information Administration (EIA) showed that the average cost for Regular gasoline in America jumped by eight cents during the past week to $2.83 per gallon. That is the largest increase since September 2017, the 10th weekly gain in a row, and the highest reading in roughly half a year. Regionally, the cheapest gas in the country can be found in Alabama, where a gallon of Regular costs just $2.49 on average, while residents of California as usual have to pay the most in the continental U.S. for Regular ($4.00/gallon). A major factor behind 2019's rise at the pump has been a spike in the price of oil.
Indeed, the cost for a barrel of West Texas Intermediate crude has jumped by roughly 30 percent since the start of the year and now hovers around the highest reading since last October. Fundamentals have helped support the latest run-up in oil prices and suggest that more upside is possible. For example, global economic growth has cooled but still managed to avoid an outright recession, therefore expanding enough to keep upward pressure on demand. Further, there have been supply disruptions in Venezuela and Iran, and output restraint from Saudi Arabia, according to Reuters. The rapid move higher seen recently, though, has likely run out of momentum because most hedge funds have now closed out their short positions (see below). As for the U.S. consumer, higher energy costs chip away at wage growth and therefore help partially explain why incoming confidence measures have not rebounded as sharply as the stock market this year. Elevated gasoline prices can also weigh on broader consumer spending, something tomorrow’s retail sales report for March may help shed some light on.
Sources: U.S. EIA, GasBuddy, Reuters, FRBSL
Post author: Charles Couch