Gas prices could jump as soon as October

The price concerns are tied to the timeline for stricter sanctions on Russia that will further choke the global oil supply. J.P. Morgan has warned that in a worst-case scenario — in which Russia retaliates by shutting down its supply altogether — the price of oil could jump to $380 per barrel, more than triple what it is today.

“If you were to ask me where could oil prices go, I would say pick a number,” said Michael Tran, managing director for global energy strategy at RBC Capital, who says that while the outlook is murky, several indicators point to a price rebound. “This is the tightest oil market we have seen in a generation or more.”

The worrisome prognosis for consumers, coming as the nation is already struggling with historic levels of inflation, has the Biden administration grasping for interventions that could bring relief.

Yet U.S. political leaders are confronting the reality that even the most aggressive domestic political and policy measures often have scant impact over prices in a global oil market guided by forces out of their control.

Economists across the ideological spectrum warn that the measures the White House is promoting — allowing Russian oil into the global market at reduced prices, taxing oil company “windfall” profits, cutting the federal gas tax — could ultimately aggravate the energy crunch in the United States, rather than ease it.

“When things like this happen, we tend to focus on short-term fixes,” said Christopher Knittel, a professor of applied economics at MIT’s Sloan School of Management. “But, unfortunately, gas prices are not really something you can fix in the short term.”

The White House worries come at a moment consumers see gas prices as one of the few things in the economy trending in the right direction. The cost of a gallon has fallen from more than $5 a month ago to a national average of $4.60, according to AAA. Oil is trading for less than the price it did before Russia invaded Ukraine.

Concerns about a potential recession dampening demand have played big in the price drop.

Another key reason prices have fallen lately is that initial sanctions against Russia are far less effective than planned. The country’s oil is making its way into world markets despite the restrictions, flowing to places like China and India. It means the global supply is not as tight as forecast when the United States and Europe initially joined forces to punish Russia over its invasion.

That could change with the next round of planned sanctions. A full ban of cargo shipments of Russian oil to Europe is set to take hold on Dec. 5, with the market expected to factor in its impact much sooner.

The sanctions would be accompanied by a ban on insuring ships that carry Russian oil, preventing them from accessing international waterways. The insurance policies for most of the world’s oil cargo ships are written out of Europe.

As a result, Russia would confront steep new obstacles to moving its oil anywhere. The sanctions are intended to double the amount of Russian oil pulled from the market since the war began.

An internal U.S. Treasury analysis projects that could send the price of oil soaring 50 percent above where it is today. Some market analysts are warning of potentially steeper climbs, which could push gas prices beyond $6 a gallon.

The warnings all come with caveats. In the event of more bad economic news signaling a prolonged recession, for example, prices would likely stabilize. Less gasoline is used when the economy is in retreat.

A fresh round of coronavirus lockdowns in large Chinese cities would similarly weaken global demand and ease upward pressure on prices.

Yet the imbalance between oil and gasoline supply and demand is so pronounced right now that prices could swing back up months before new sanctions take effect, in the thick of the midterm campaign, said Kevin Book, managing director at ClearView Energy Partners, a research firm.

“People procuring oil make their bids early,” Book said. “It takes four to six weeks for it to be delivered. If they think a shortage is coming, they plan for it.”