Ah, summertime. The sun will be out. The days will be warm and long.
For many of us, it'll be just the time to load up the kids into the family van and head off to Maine, Yellowstone National Park, Niagara Falls and the Great Lakes, or maybe Walt Disney World.
But be ready. There's a chance you will be looking at paying even more than you are now to fill up at a gas station (assuming you aren't driving an electric vehicle).
Don't be too surprised if you see $5 a gallon or more at the gas pump — if you're not paying that much already.
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Oil prices are the big driver, with West Texas Intermediate, the benchmark U.S. crude, closing in on $87 a barrel on Friday. Brent, the global benchmark, settled above $91 a barrel.
Those are gains of 21.3% and and 18.3%, respectively on the year.
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(In futures trading Sunday, WTI and Brent were both falling as some oil traders took profits after gains in the past few weeks.)
The oil-price gains are the products of four forces:
Middle East tensions. Iran and others are threatening a number of retaliatory measures, possibly shutting down the Strait of Hormuz in the Persian Gulf to tankers heading out out to Europe and elsewhere. Iran's interest is retaliation against Israel and the U.S. after an Israeli attack on Iran's embassy in Damascus, Syria, killed two Iranian generals.
Global supply disruptions. Russian oil refineries have been hit by Ukrainian drone attacks. Houthi attacks on ships moving in and out of the Red Sea have slowed shipping generally and oil shipments in particular to Europe and Asia. In some cases, shipping companies have routed their vessels all the way around Africa.
OPEC and friends want higher prices. Members of the Organization of Petroleum Exporting Countries and the OPEC+ countries are trimming output to push prices higher. They will probably leave production cuts in place when the cartel meets in June.
More demand for gasoline and other products. Increased demand reflects continued economic growth in the Americas and more demand in both Europe and China, says Tom Kloza, global head of energy analysis at Oil Price Information Service.
One thing is true: Energy stocks have been among the strongest group of stocks this year and were this past week.
The Energy Select Sector SPDR Fund (XLE) , which tracks the energy stocks in the S&P 500, jumped 3.9% on the week.
Exxon Mobil (XOM) , was up 1.4% on Friday and 4.4% for the week. Chevron (CVX) added 2.5% on the week. ConocoPhillips (COP) rose 4.9% on the week.
Blocking the Strait of Hormuz: 'A show stopper'
Closing down the Strait of Hormuz would cause crude oil prices to jump by $40 a barrel, Robert McNally, founder of Rapidan Energy Group, has said in multiple interviews in the last week. "It would be a show stopper," he told Bloomberg.
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That's show stopper as in recession. How severe is anyone's guess.
The big question is whether Iran and Hezbollah, the Iran-backed group, really want to do something that would hurt not just Israel and the U.S. but everyone in the Persian Gulf region.
McNally, once an energy adviser to former President George W. Bush, is not alone in worrying about the risks.
JP Morgan analysts see crude oil topping $100 a barrel by fall. Bank of America's analysts are looking at $95.
Analysts at Australia's ANZ Bank wrote on Monday (Australian time), "The Israeli-Hamas war has not as yet affected market fundamentals, but it has increased the risk of supply disruptions."
Rusty Braziel, founder of the Houston consulting firm RBN Energy, also says $100 crude oil is likely. But that price won't last long, he said on CNBC last week.
Oil and related markets are very seasonal, with prices rising in the late winter into late spring or summer. Braziel says the peak will come by fall.
Kloza sees crude topping at $95 a barrel, with two peaks: one in late spring, with a shortish decline and another runup in the fall before a traditional seasonal decline.
In 2023, AAA's price peaked on Sept. 18 at $3.88 a gallon. By year's end it had fallen 20% to $3.11.
Motorists already are seeing higher prices
You have felt the increases in gas prices, with the national average price retail price on Sunday at $3.59 per gallon, up 15.5% on the year, according to AAA's Daily Fuel Gauge report.
GasBuddy.com puts the price at $3.58 a gallon, up about 18%.
If you live in California, you already are paying more than $5 a gallon — $6.05 if you stop in rural Mono County.
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In the South and Colorado, prices are still south of $3.40 a gallon.
What would the national crude price be if gas costs $5 a gallon?
Probably close to $121 a barrel if the price of crude is 57% of the pump price and taxes and fees are uniform.
If crude sold at $95 a barrel, as Kloza and many analysts believe will be the peak, the national pump price should be around $3.92.
In Mono County, Calif. — five hours east of San Francisco along the Nevada border — the price would be closer to $6.50, admittedly not a pleasant thought.
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