Jeff Currie, founder and CEO of Real Macro and co-founder and director at 1947 Oil and Gas, has stated there's an "extremely high probability" that gasoline prices will hit $5 per gallon by the US midterm elections. This forecast comes as refineries navigate the complex process of balancing the production of both gasoline and diesel, a dynamic that Currie believes will exert upward pressure on gasoline prices.
This prediction aligns with broader concerns about rising energy costs. The web search results indicate that US diesel prices have already surpassed $6 a gallon for the first time ever, reaching a national average of $6.0556 per gallon, and nearing $8 a gallon in California. This surge in diesel prices, which are rising faster than regular unleaded gas, is attributed to key refineries being offline or destroyed in Eastern Europe and the Middle East, as well as the impact of the Strait of Hormuz blockade.
Currie has previously highlighted that Brent crude above $107 and a $110 per barrel diesel crack spread signal structural inflation resulting from a decade of underinvestment in physical supply chains. The crack spread, which measures the refining margin, has surged above the price of Brent crude itself, indicating severe physical product scarcity. The restart of Chinese refineries, driven by extreme crack spreads, is also contributing to increased crude demand in an already strained market.
Economists like Diane Swonk of KPMG and Joseph Brusuelas of RSM have warned that high diesel prices will lead to an "inflationary problem" for months, affecting nearly all goods due to increased shipping costs. Groceries, in particular, are expected to be sensitive to these price hikes. Farmers, already facing fertilizer shortages, will also be significantly impacted, with some expressing concerns about being pushed to the brink.
