What will happen in the gasoline market now if buyers expect higher gasoline prices tomorrow?

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With ballooning inflation, gas prices have reached sky high levels—but will they ever go back to how they were before?

The national average price per gallon topped $5 for the first time in June. While it’s dropped slightly since then, the average gallon still costs 50% more than this time last year.

Prices have escalated due to a diminished global oil supply during the pandemic. Supply has been further strained because major Western countries sanctioned Russia, a top oil producer, in response to its invasion of Ukraine.

President Joe Biden has implemented emergency measures to help alleviate gas prices, and more could be on the way. But analysts say there’s no knowing when—or if—we will see a return to relatively “normal” gas prices.

Analysts Say Gas Prices Won’t Go Down Anytime Soon

Oil trading is slowing, with traders anticipating lower demand due to fears of an oncoming global recession. As a result, the national average price of gas per gallon has inched back down, with the current average at $4.80 per gallon, according to AAA.

But that average is still significantly higher than the $2.55 average per gallon in January 2020 before the pandemic officially began. And though oil prices may be declining, it could be a temporary situation.

“I don’t see [gasoline prices in the United States] going down anytime soon dramatically,” says David Rundell, partner at the consulting firm Arabia Analytica and a former chief of mission at the American Embassy in Saudi Arabia. “I think we’re at around $5 a gallon for quite a while.”

And that’s a potentially optimistic outlook. JPMorgan analyst Natasha Kaneva recently warned that gas prices could reach over $6 per gallon by August.

“Oil prices are complicated—there’s too many factors to be able to say what we think the prices will be tomorrow,” says Rundell. “There are many unexpected things that could happen.” Rundell also owns an oil production company in West Texas.

A few key factors contribute to continued volatility of fuel prices, and point to why prices of $5-per-gallon may be the norm for a while.

Dwindling Global Supply and Increased Demand

The overall global supply of oil has struggled to rebound with increased demand.

The supply, which originally was reduced due to lack of demand at the beginning of the Covid-19 pandemic, is now being squeezed by Western bans on Russian oil. Prior to invading Ukraine in February, Russia provided roughly one in 10 barrels of oil in the global market, according to the New York Times.

It’s now proving to be a challenge for oil-producing companies to make up for the lost supply. OPEC and OPEC+ vowed to boost summer production, but oil output in June from OPEC actually declined from projections due to production disruptions in Nigeria and Libya.

Analysts had already been skeptical that the organization would hit its production targets, and as a result, oil traded at over $100 per barrel even before news of the missed target broke.

There are also production disruptions elsewhere. A strike by Norwegian oil workers could cut as much as 8% of the country’s output, putting an additional hamper on the global supply.

The U.S. is selling a record number of barrels to international buyers to help prop up the struggling global oil market, according to Rystad Energy, an independent research and business analytics company. But alone, it won’t be enough to bring gas prices down in the long term.

Increased Refining Costs

Crude oil must go through the refining process before it’s fit for vehicle use. The refining process is getting more expensive, and those costs are getting passed on to consumers.

More than one-fourth (26%) of the cost of a regular gallon of gasoline for consumers now comes from refining costs, according to the U.S. Energy Information Administration. That number has increased as refineries across the country shut down due to both natural disasters and a decline in demand during the height of Covid. The remaining refineries are struggling to keep up.

Weather Threats to Domestic Production

There are also growing threats of a busy hurricane season, which analysts worry could pummel an already fragile energy infrastructure. Any major storm in the U.S. Gulf Coast could severely disrupt oil exports—and further strain an already parched supply.

Read more: Experts Predict “Above Average” 2022 Hurricane Season

Past natural disasters have had significant impacts on domestic oil supply. In 2021, Hurricane Ida forced more than 95% of the Gulf of Mexico’s oil production facilities to shut down temporarily. Another hurricane of that magnitude would have drastic consequences for the energy supply chain.

States Sending Stimulus Checks to Help Consumers Manage Rising Prices

While there may not be relief coming on a large scale, Biden has proposed a three-month federal gas tax holiday in a last-ditch effort to help consumers. The holiday would suspend the federal gas tax from July through September, which could save drivers up to 18.4 cents per gallon on gas (up to 24 cents per gallon on diesel).

The savings, however, would be meager. If the gas tax had gone into effect at the beginning of July, it would save drivers about $78, based on data average mileage data from the Federal Highway Adminstration and average mile per gallon data from the U.S. Department of Energy.

Meanwhile, some states are stepping in to provide relief to their residents.

Over a dozen states are sending one-time payments to taxpayers in the coming months to help them manage rising prices. Those states include Colorado, Delaware, Hawaii and more. California will be sending the largest checks, with recently approved legislation promising payments up to $1,050 to qualifying households.

A handful of other states are considering implementing similar programs.

For now, consumers will have to manage the extensive costs they’re experiencing at the gas pump. Smart strategies to save on gas include using smartphone apps to find cheap gas near you, enrolling in gas rewards programs and responsibly purchasing gas with a rewards credit card.

Read More: Will Gas Prices Continue To Decline? How To Save At The Pump This Summer

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