As US gas prices continue their upward trajectory, the issue has become "a polarizing number," according to GasBuddy's Head of Petroleum Analysis Patrick De Haan. He joins Market Domination Overtime alongside Yahoo Finance's Rick Newman to discuss the underlying factors.
De Haan notes that the average gas price has increased by over 60 cents from the January lows, and could reach $3.70 in the next couple of days as the summer season approaches. However, he believes prices are nearing "the potential end of the spring rally."
Importantly, De Haan highlights the political significance of gas prices, particularly ahead of the upcoming election. If prices were to go above the $4 per gallon threshold, De Haan believes it could negatively impact President Biden's approval numbers, calling it a "danger zone" from a political standpoint.
Furthermore, De Haan identifies fragmentation as one of the key drivers behind persistently higher gas prices. The fact that different regions use various gasoline blends, all under the control of various entities, creates an environment that "could use improvement" and contributes to the elevated prices seen across the country.
- Gas prices on the rise, helping fuel inflation in March. High inflation also weighing on the Biden administration as the 2024 race heats up. At an event Tuesday, White House senior advisor, John Podesta, saying the president will do what he can to keep prices down.
Let's bring in GasBuddy head of petroleum analysis, Patrick de Haan, and Yahoo Finance's Rick Newman is here with us as well. Patrick, maybe just set the stage for us first. Gas prices, Patrick, where are we now? How much have we jumped up so far this year? And where do you think we're headed next, Patrick?
PATRICK DE HAAN: Yeah, we're up about $0.60 from our January low of 3.03. We're at 3.67, kind of teetering on that. We'll probably hit 3.70 here in the next couple of days as mid-Atlantic and Northeastern states see the effects of the rollover to summer gasoline.
So we're headed higher but we saw a bit of a technical sell-off developing here later after the EIA numbers came out. They were pretty bearish, at least when it comes to gasoline demand, which is still relatively anemic. So there's some light at the end of the tunnel here.
I do think gas prices do continue going up for the next week or two, but I'm sensing, we're getting close to the potential end of the spring rally.
- Interesting. But as we've talked about, with you, Rick, many, many times, the direction of the gasoline price is closely tied to sentiment around the president. And not just President Biden, by the way, this happened with past presidents as well.
RICK NEWMAN: Yeah, gas prices. I mean, the typical household spends only about 3% of its budget on gasoline. I mean, this just has--
- But the mindshare.
RICK NEWMAN: It's way outsized effect on consumer psyches. I mean, if there's one price everybody sees every day that tells them are things a bargain, are they too expensive? Is gasoline prices.
I would actually ask Patrick, what is the danger level for President Biden, do you think, in terms of gas prices? It does seem that when we turn over from a number that starts with a 3 to a number that starts with a 4, that gets people's attention. Is it just those firm thresholds or is it something else?
PATRICK DE HAAN: Yeah, it really is those key psychological barriers here. I mean, we're what? Six, eight months away from the election. If we saw the National average at $4, that's going to have a strong correlation to Biden's approval numbers and I think they would tank. And so that's really the danger zone.
Now, we don't see that. There's still the potential hurricane season that's supposed to be very busy later this year. I think Colorado State gives a 40% chance of a hurricane hitting in somewhere on the Gulf Coast between Texas and Houston. So that's going to be a wild card.
But absolutely, there is huge sensitivity. You couldn't have said it better that Americans, the gas prices, whether they need to fill their tank up or not, that's the sense of they're feeling about the broader economy, whether it's inflationary or disinflationary. That gas price is really the polarizing number.
- And I'm also interested, Patrick, you noted recently, if you want affordable gasoline, you said, defragment the summer gasoline requirements. What does that mean, Patrick? Walk us through defragment.
PATRICK DE HAAN: Well, as you mentioned there, just a little while ago, Podesta is signaling that the Biden administration would love to bring down gasoline prices. I don't know how much more I have to shout from the rooftops is that the fragmentation is what really kills gas prices every spring. That is these different areas across the country have different requirements, different entities regulating them.
Whether it's the California Air Resources Board which supersedes the EPA, Arizona has its own blend. This map from 2004 shows 17 different types of summer gasoline in use across the country. Now, it's not that bad now but it's still certainly an area that could use improvement.
Stick with one blend or maybe two, have that in use across the US. So that when a refinery goes down in the Gulf Coast or in Chicago, that gasoline can be shipped and purchased across the state lines. And that's, really, what leads spring prices up every spring. I mean, the increase this year, absolutely predictable. And part of the big reason is the switch over from winter to summer gasoline.
