Gas Heads Back Toward $5

Goldman Sachs analysts believe that oil prices will move to $107 a barrel. Based on how oil and gasoline prices rise in tandem, a gallon of regular gas should be about $5. (These states have the highest and lowest gas taxes.)

The primary reason that oil will rise to a much higher level is supply cuts by Saudi Arabia and Russia, two of the largest suppliers in the world. The United States is also on this list but cannot pump enough oil to offset these declines. Presumably, Saudi Arabia wants to add more money to its national treasury. The Russian decision is more geopolitical.

The price of oil is about $88 a barrel, up from $67 in June. The current price for an average gallon of regular nationwide is nearly $4.

Gas prices reached $5 for the first time last June. Russia’s invasion of Ukraine cut supply. China’s economy was doing well. China is the world’s largest consumer of crude, and therefore demand rose.

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What does $5 gas mean? First, household budgets will be damaged. This is particularly true of lower- and middle-class households. This, in turn, threatens the upcoming holiday season. Some retailers make all of their profits in the fourth quarter.

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Other industries hit hard by high fuel prices include airlines and trucking.

At $5, gas prices raise the specter of recession. Goldman Sachs said a few days ago that the chance of a recession in the near term had dropped to 15%. With gas at $5 a gallon, that forecast is wrong.

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