Following OPEC’s announcement last week that it will cut production by more than a million barrels per day beginning in May, the national average cost for a gallon of gas increased by seven cents to $3.55 for the week ending April 6, according to the latest AAA gas prices report.
The current national average is 15 cents more than a month ago, but 61 cents less than a year ago, AAA reported.
"The oil market has had a few days to digest the OPEC news and speculate about the reason," AAA Spokesperson Anrew Gross said. "This has led to the price of oil stabilizing for now. But the cost of oil accounts for more than 50% of what we pay at the pump, so drivers may not catch a break at the pump any time soon."
OPEC’s decision and the recent bump in gas prices comes as warmer weather approaches, in line with expected increases in gas demand.
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After OPEC’s announcement to cut oil production, crude oil prices spiked above $80 a barrel, AAA said.
Meanwhile, gas demand increased from 9.15 to 9.3 million barrels per day last week, according to the latest data from the Energy Information Administration (EIA), AAA said in its report. At the same time, total domestic gasoline stocks dropped from 4.1 million barrels of crude oil to 222.6 million.
"Increased demand amid tighter supply has contributed to pushing pump prices higher," AAA said in its report. "If demand continues to rise, pump prices will likely follow suit."
Over the past week, some states have seen their gas price averages increase more than others, including Ohio, where prices at the pump rose 25 cents, Delaware (+16 cents), Maryland (+14 cents), and Georgia (+12 cents).
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Gas price movements could have a strong influence on consumers’ expectations of inflation, and thereby actual inflation, according to a research paper published by the Federal Reserve Bank of Kansas City earlier this year.
"Consumers’ inflation expectations are a key determinant of actual inflation," The Kansas City Fed said in its report, citing multiple studies. "For example, higher inflation expectations can lead workers and businesses to demand higher wages and prices in anticipation of higher costs. Moreover, if households expect higher inflation in the future, they may choose to make big-ticket purchases such as household appliances today, thereby pulling forward future demand and driving up actual inflation. One important factor shaping households’ inflation expectations is price changes in the goods consumers purchase most often. Gasoline is one such salient good."
Gasoline prices reached an all-time high of more than $5 per gallon in the summer of 2022 as inflation measured by the Consumer Price Index (CPI) increased to a 40-year high of 9.1% in June, the Kansas Fed pointed out. But the department's research also found that "40% of the decline in one-year-ahead inflation expectations can be attributed to the decline in gasoline prices from September to December 2022."
If gas prices rise, they could have an effect on inflation, which has cooled in recent months.
"Although gasoline prices have declined from their all-time highs, they are expected to remain relatively stable in 2023," the Kansas City Fed said in its report. "As a result, gasoline prices are unlikely to deliver further reductions in either inflation or inflation expectations this year."
Despite still being above the Fed’s 2% target range, inflation growth has been slowing down. Inflation increased by 6% year-over-year in February, based on the CPI. This marked the smallest 12-month increase since September 2021.
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