Gasoline prices have been fluctuating but are likely to keep moving sporadically higher, and more drivers could pay over $5 and even $6 a gallon for unleaded in the peak summer driving season.

The national average for unleaded gasoline Thursday was $4.23 per gallon, down five cents from a week earlier and 10 cents below the recent all-time high, according to AAA. But analysts expect prices at the pump to start rising even more, with the jump this week in oil prices and the rising price of gasoline in the futures market.

“I think $5 could easily be achieved here if the situation continues to worsen,” said John Kilduff, a partner with Again Capital. “In California, I’ve seen $7 at some stations.”

California drivers have been hardest hit, paying an average $5.88 per gallon of unleaded statewide, in part because of higher taxes and the unique blend of West Coast fuels. According to AAA, drivers in Los Angeles county are paying an average $6.03 per gallon. Nevada prices are averaging $5.17 per gallon, while Washington state’s average is $4.72 per gallon.

With the exception of Illinois, at $4.49, the lowest prices are in the Midwest and South. Prices in Texas and Iowa are averaging $3.88 per gallon, and Ohio and Georgia are at $3.99 per gallon, according to AAA.

Some states have rolled back gas taxes or are considering doing so. Connecticut plans to put a three-month moratorium on its 25 cents per gallon gas tax starting April 1.

Maryland last week suspended its 36 cents per gallon gasoline tax, and its average price for unleaded at the pump is now $3.79 per gallon, well below the $4.31 per gallon in neighboring Pennsylvania, a state with a high gas tax. Georgia is also suspending its gasoline tax.

Legislation has been proposed by Democrats in the U.S. Senate and House to temporarily lift an 18.4-cent per gallon federal gas tax. Those proposals have been referred to committees.

How high can prices go?

Gasoline prices have fallen from a record $4.33 nationally per gallon of unleaded on March 11. Gasoline prices declined as oil prices dipped, but crude has moved higher again and analysts say gasoline prices could too.

How high prices at the pump can go is hard to say, particularly in the peak summer driving season between Memorial Day and the Fourth of July. Analysts say that will depend on oil prices, which have been fluctuating as the world scrambles to replace Russian oil exports.

“The honest answer is I have no idea,” said Tom Kloza, global head of energy analysis at OPIS. “I think on the West Coast we could see prices close to $6 a gallon. I think for the rest of the country, I’m in the $4.25 to $4.75 camp.”

Gaps in refining

Kloza said this is a gap year for the global refining industry, with some lost capacity and more planned refining operations about to come on line.

There is about 1.2 million barrels a day less refining capacity in North America than there was just before the pandemic in early 2020, he said.

“Refineries in California, North Dakota, Wyoming and Newfoundland are among those that have or are being repurposed to make renewable diesel and sustainable aviation fuel,” he said. Capacity was also lost when Shell closed a refinery in Convent, Louisiana, and Phillips 66 turned its Alliance refinery in Louisiana into a storage facility after it was damaged by Hurricane Ida, he said.

New refining capacity is expected to come on line in Southeast Asia, the Middle East and Nigeria, Kloza said.

“Those refineries were designed to maximize yields of the middle of the refined barrel and will be capable of making large amounts of diesel and jet fuel,” he wrote in a note. “But the rest of 2022 and early portions of 2023 will be dependent on existing global capacity, against the backdrop of the most uncertainty for crude oil supply since the 1970’s.”

Analysts said if the Ukraine conflict were to end, crude could fall sharply, but the situation is uncertain. For now, an estimated 2 million to 3 million barrels per day of Russian oil is off the market. Russia had also exported about 2.5 million barrels a day of refined products, mainly to Europe, and the world is also making up for some of that lost supply.

Kloza said for every $10 increase in the price of oil per barrel, gasoline prices typically rise by 24 cents a gallon.

U.S. gasoline supplies are slightly below normal but refiners are running at 91% capacity, and should be able to provide sufficient amounts of gasoline to meet demand, said Kilduff.

Diesel fuel has already crossed the $5 threshold nationally, and was at an average of $5.05 per gallon Thursday. Analysts said that market is much more tightly supplied, and if refiners switch more capacity to create diesel, it could add pressure to gasoline prices.

The U.S. is a net exporter of refined fuels, exporting about 1 million barrels a day of gasoline last week. But at the same time, the U.S. imported 268,000 barrels a day of gasoline, according to the U.S. Energy Information Administration.

One way to prevent any shortfalls in the next couple of months would be to suspend the U.S. requirement for summer fuels, said Kilduff. Refineries typically shut down temporarily at this time of year to retool for the transition to fuels that are better suited for warmer weather.

“Waving the patchwork of environmental regulations for summer gasoline would greatly reduce prices at the pump and assist consumers,” he said.

Even though consumers are watching prices rise quickly, gasoline retailers on average are not scooping up bigger profits, Kloza said

“The margin right now for the typical retailer in 50 states is 33.4 cents per gallon, which is absolutely consistent with where it’s been for the last few years,” Kloza said.

Fluctuating prices

Drivers are seeing big discrepancies in gasoline prices from state to state but also from station to station in their own neighborhoods.

Sal Risalvato, executive director of the New Jersey Gasoline, Convenience Store, Automotive Association, said one reason is that gasoline prices have been fluctuating and moving quickly — so quickly that his association’s 1,000 members are having trouble keeping up with price changes.

“I’ve been watching the wholesale prices. They go up one day by 20 cents, down the next day by 15 cents, then up 20 and down 25. It’s been an absolute roller coaster,” he said. “When you get a gas delivery on a down day, it’s like winning the lottery.”

Oil price volatility is behind the fluctuating prices at the pump. West Texas Intermediate oil futures were trading lower Thursday, on the prospect of a deal that would allow Iran to export oil in exchange for an agreement on its nuclear project.

On Wednesday, prices soared on reports that the Caspian Pipeline Consortium terminal on the Black Sea suffered storm damage and loadings had stopped of more than 1 million barrels a day of Kazakh and Russian oil.

West Texas Intermediate crude was trading at about $112.40 per barrel Thursday, well off its recent high of $130.50 per barrel. WTI has been trading in a wide range, falling below $95 per barrel last week.