Risk of $5 Gas ‘Can No Longer Be Dismissed,’ JPMorgan Says
(Bloomberg) — U.S. gasoline prices have a chance to rise to $5 a gallon as refineries prioritize production of jet fuel over other products, according to analysts at JPMorgan Chase & Co.
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While Brent crude oil prices have averaged around $100 since the start of the war in Iran, shocks are increasingly pushing away from crude oil and into refined products such as jet fuel and diesel, analysts led by Natasha Kaneva wrote in a note on Friday. If refinery operations remain restricted, crude oil could remain around $100 as fuel prices continue to rise, they said.
For now, the product most affected by the Middle East conflict is jet fuel, which provides incentives for refineries to maximize production. This generally means less diesel, analysts wrote. As heavier hydrocarbons move away from the “crackers” that produce gasoline feedstock, the ripple effects extend to gasoline as well, they said.
“This probably helps explain why U.S. gasoline prices are where they are.” [$4.55 a gallon] and why the risk of $5 gasoline can no longer be ignored,” analysts wrote.
In the U.S., jet fuel yields increased by roughly 2 percentage points, while gasoline yields decreased by 2 percentage points. Nationally, gasoline inventories remain near seasonal lows over the past decade.
“The timing couldn’t be worse,” analysts wrote. “The US driving season unofficially begins with Memorial Day at the end of May.”
(Graph added and updated throughout)
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