How the heat wave impacts fuel prices

Didn’t enjoy the heat at the beginning of the month? Well, you might hate it more when you hear how it impacted, and may continue to impact, your price at the pump.  

Right now, gas costs about three cents more than this time last year despite an overall drop in the rate inflation. So, what does the heat have to do with it? 

Gas prices climbed with the temperature. 

In the first week of September 2023, the average price per gallon of regular, unleaded gasoline jumped thirteen cents, marking an eight-month high.  

While there are lots of economic and political factors behind this price hike, experts believe the several heatwaves we have experienced this summer have contributed to the problem significantly.  

Why does the heat affect gas prices? 

Simply put, refineries can’t work at full capacity during the extreme heat. These refineries – which convert oil into usable products like gasoline – determine the supply of gasoline to consumers. So, when there is extreme heat right around a holiday weekend, and demand goes up, but supply falls, the price for consumers is naturally going to spike.  

“Petroleum engineers can tell you that when ambient temperatures get to the 100-degree neighborhood, it is difficult to run at maximum levels,” Tom Kloza, global head of energy analysis at Oil Price Information Service, told USA Today 

This has particularly been a problem for refineries in states like Texas, Louisiana, and Tennessee, which saw a huge slowdown in production due to the heatwaves at the beginning of the month. 

What toll did the September heatwaves take? 

In the first week of September, refinery utilization across the United States decreased by 0.9% to 93.6%. While that might not seem like a huge decrease in theory, in practice, that’s hundreds of thousands of barrels of gasoline per day. Especially during  a high-demand period, that makes a significant impact on supply and demand.  

2023’s heat has caused prices to skyrocket before. 

This past July was the hottest month ever recorded, forcing a lot of refineries along the Gulf Coast to shut down for long periods of time when temperatures passed 100 degrees Fahrenheit. Not only did this cause gas prices to rise, but many of the affected refineries spent August running day and night to try to ramp up production.  

Gas stations are not to blame.  

We’ve written before about how gas stations don’t often see the profits when gasoline prices rise. The same is true now. With only about 7% of the retail price of gasoline going to markup, station owners don’t tend to make a huge profit on gas sales, as opposed to secondary revenue. 

Likewise, with price hikes, they are often faced with the difficult decision of choosing to keep prices steady, at a loss to themselves, to maintain customers. Competition over who can provide the lowest price and attract more customers can also put gas profits at significant risk.   

Don’t hold your breath for price drops. 

It’s hard to determine if prices will cool down with the weather. More hurricanes on the horizon in the Gulf of Mexico could further refinery downtime, thus exacerbating the issue.  

The good news is that refineries will soon switch to producing winter-grade gasoline, which contains more butane and is generally cheaper to make, meaning retail prices could even out. 

In conclusion… 

Due to extreme heat conditions we’ve experienced this summer, gas prices have skyrocketed at a worse rate than national inflation. Future prices are also largely connected to the weather, so businesses and individuals should expect to budget for unpredictability.