By Avi Salzman
There's an adage in the oil industry: the cure for high oil prices is high oil prices. When prices get high enough and gasoline rises too, people drive less. As demand falls, so do prices.
But what happens if people keep driving despite steadily increasing prices? That's what's happening today.
A recent surge in prices may soon test just how much pain at the pump American drivers are willing to absorb. Average U.S. prices surged on Thursday to $4.30 a gallon, according to AAA. That's the highest level since July 2022, after Russia's invasion of Ukraine.
In some states, the increases in prices have been even more drastic. Prices in Michigan surged to $4.58 on Thursday from $3.87 a week ago. In Illinois they rose to $4.66 from $4.28 a week ago. The Midwest is in a particularly bad fuel crunch, because some refineries are offline for maintenance or hampered by other issues.
The main reason gasoline prices are high is that the Iran War has sent oil prices up 70% this year, because the war has cut off about 20% of the world's oil supplies. Oil prices account for at least half of the price of gasoline.
But demand is also a very important factor. One of the biggest reasons that gasoline prices just keep rising is that people keep buying more of it. It's basic economics: If supply is falling fast and demand is steady, prices inevitably rise. Phillips 66, a major refiner, told investors in an earnings call on Wednesday that "we haven't seen much demand destruction, probably 1% down for products, both gasoline and diesel."
The latest demand estimates from the Energy Information Administration, or EIA, the research arm of the Department of Energy, confirm that fuel demand is staying strong. The amount of gasoline supplied to the market, a proxy for demand, is up 1.2% over the past four weeks versus a year ago, and diesel demand is up 4.8%. People clearly aren't yet rationing their fuel, or putting off that trip to the grocery store.
Americans have shown a growing resilience to high gasoline prices in recent years. One reason may be that gasoline isn't as big a part of the average American's budget anymore, particularly as cars get more fuel-efficient. Bank of America found that when gasoline prices first spiked in March, lower-income Americans -- who tend to spend a bigger share of each dollar on gas -- were spending about 4.2% of their budget on gas. In 2012, average households of all income levels spent more than 5% of their money on gas.
In June 2022, when average U.S. gasoline prices rose over $5 for the first time ever, demand fell by less than 0.5% from the prior month.
Unless something big changes, Americans should expect gasoline prices to keep rising. Most retail gasoline stations have not yet fully passed along the latest wholesale gasoline prices to consumers, said Denton Cinquegrana, chief oil analyst at OPIS, which is owned by the same parent company as Barron's. When they do in the coming days, prices should rise more.
Cinquegrana said that he expects drivers to change their behavior more dramatically as prices rise closer to $5 -- perhaps by switching from premium to regular unleaded, or by driving less.
"We're starting to enter that territory where you might see some impact on demand," he said in an interview.
Until Americans take their foot off the pedal, or the war ends, prices are unlikely to come down much.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 30, 2026 11:52 ET (15:52 GMT)
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