Gas prices may surge ahead of midterms

WASHINGTON — Drivers relieved by the recent dip in gas prices may be in for a shock when the summer winds down, with energy analysts warning a fresh round of price surges could emerge as soon as October.

The prospect of a new gas price jolt coinciding with midterm elections has the White House and many Democrats on edge.

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 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. 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.