Consumers Clobbered by Sky-High Gas Prices in February

High crude oil prices, investor speculation and refinery maintenance have propelled gas prices sky high.

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Despite chillier weather outdoors, gas prices are heating up across the country, rising sooner and faster than in previous years, and causing consumers some serious sticker shock at the pump.

Prices have risen every day for more than a month now, with the current national average around $3.77 a gallon, according to AAA Fuel Gauge, 46 cents higher than it was just a month ago and jumping almost 16 cents in a week.

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But while consumers might be puzzled about the unexpected price spike, experts are feeling a bit of deja vu. In the past gas prices have fallen in February as demand abates and drivers travel less, but that wasn't the case last February, when the same type of run-up in prices happened sending gas soaring to almost $3.60 a gallon.

(Source: GasBuddy.com)

Some of the recent spikes are due to the warmer-than-usual winter weather in parts of the country, which has helped keep demand—and prices—more elevated. Still, experts say a pre-spring price spike could become an unwelcome tradition among motorists thanks to a slew of other fundamental factors changing the oil and gas landscape.

The most obvious culprit is higher crude oil prices, the largest cost input when it comes to producing gasoline. Oil sells for about $96 a barrel right now, but experts say that figure could jump closer to $100 in coming weeks as concerns about future supply constraints thanks to heightened demand and decreased output from oil-producing countries push up the price of oil, directly impacting the cost of refining oil into petroleum products such as gasoline.

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"Saudi Arabia and OPEC reduced their output by a million barrels last month, that's a big amount of oil," says Chris Faulkner, CEO of Dallas-based Breitling Oil and Gas. "They saw that the United States and other countries are producing more oil now, so they pushed down their output—that causes fear that there will be supply issues of gasoline going into what are normally big months kicking off the summer driving season."

Another reason for the increase in prices has to do with the blends of gasoline required by environmental regulations, which differ from state to state. Beyond requirements for winter and summer blends, many states have additional fuel blend requirements designed to limit emissions and pollution. For example, California has a different fuel blend than say New York, and the Northeast has a different blend from Chicago. That means if there's a shortage in California, refiners in the Northeast can't sell their excess to ease prices in California.

"There are 15 blended boutique gasoline products in this country," Faulkner says. "The EPA should dictate a standard for the winter and a standard for the summer. This is the most antiquated policy around environmental issues. Why does one country need 15 types of gasoline? It makes no sense."

Right now, refineries are in the process of switching from producing winter blends of fuel to summer blends of fuel, a transition that requires time and maintenance, and limits output pushing prices upward. Supply also becomes scarcer as refineries try to sell off the remainder of their winter blend stock before beginning to produce the summer blend, required to be in use by May 1.

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"Refineries are really between a rock and a hard place," says Gregg Laskoski, senior petroleum analyst at GasBuddy.com. "They're trying to reduce their inventory of winter blend gasoline so they can move into the period of annual maintenance when consumer demand is relatively weak."

All these bottlenecks causing price increases at the pump are worsened by a weak U.S. dollar that leaves consumers with less purchasing power and the fact that the recent end of the payroll holiday amounts to a pay cut for 160 million Americans, Laskoski adds.

How much more can gas prices climb from here? It's anyone's guess, but $4-a-gallon gas by April shouldn't be ruled out of the picture, experts say. Projections made by GasBuddy, a online gas-price comparison site, put peak spring prices at between $3.80 and $3.95 a gallon, a forecast Laskoski now calls "conservative."