Gasoline prices are a wildcard for consumer wallets this summer, as tight supply and uncertainty in Ukraine could drive fuel costs sharply higher.

Gasoline prices are climbing towards $5, and they seem set to stay high even beyond the peak driving season in July. Already, Yardeni Research projects households are spending the equivalent of $5,000 a year on gasoline, compared with $2,800 a year ago.

In a normal summer, gasoline prices rise into May and then peak in the middle of the month. Summer driving season kicks off at the end of the month on Memorial Day weekend, with the largest number of drivers hitting the roads in July — just after the Fourth of July holiday.

And with inflation running at more than 8%, drivers are unlikely to catch a break this year. After dipping in April, the price of gasoline has been rising this month to record levels as oil prices climb. Gasoline experts see prices rising to $5 or more per gallon, and JPMorgan analysts are even forecasting a national average of $6.20 per gallon in August.

The national average for unleaded gasoline was at a new high of $4.56 per gallon Wednesday, according to AAA. That is 4 cents higher than Tuesday’s price and a 16-cent per gallon jump in just the past week. Last year at this time, the price was $3.04 per gallon.

“The goal posts are moving constantly. I think we probably have somewhere in the neighborhood of a one-in-three shot of the national average getting to $5,” said said Patrick DeHaan, head of petroleum analysis at GasBuddy. “We’re definitely heading a little higher short-term, but we’re still waiting t o see if the EU sanctions Russian oil. They talked about it. That could boost the momentum of getting close to $5.”

For the first time ever, the average price for unleaded gasoline was $4 per gallon or above in all 50 states this week, AAA data shows. Due to taxes and other factors, prices vary widely — with California at an average $6.05 per gallon, and Florida at an average of $4.50.

Tom Kloza, head of global energy research at OPIS, said he expects the average price to rise north of $5 nationally by peak driving. He also expects states and the federal government may drop taxes on gasoline to soften the blow to consumers.

“I think gasoline is special. And the Biden administration is absolutely in a tizzy trying to figure out how to mitigate against still higher numbers,” Kloza said. “I do think we could see a $5 handle, and I don’t think we go much above that. You really do have a demand destruction when you get above these numbers.”

Kloza said he expects consumers would cut back on driving if gasoline gets too costly, and that would cool the price somewhat. Analysts say an economic slowdown could also slow price gains.

In the futures market Wednesday, the RBOB gasoline contract fell fell % t6o $3.70 per gallon after Target’s quarterly results raised worries over the health of the consumer. That follows on an earnings miss by Walmart Tuesday.

“It’s a reminder of how much air is in this price,” said John Kilduff, partner of Again Capital. “There’s worry about the economy and there’s demand concerns. Those Target earnings were informative about just how squeezed the consumer is getting. Even though we’ve got strong demand, there’s concerns that we won’t stay aloft.”

Target CEO Brian Cornell blamed the price of gasoline as one factor impacting consumers. In his stores, customers are putting off buying items like TVs and appliances and are spending more on luggage for traveling. But they are also spending more on food and beverages and household items.

According to Yardeni Research, consumers’ inflation-adjusted incomes are barely growing. On one hand, they have accumulated a lot of savings; on the other, they are charging more on credit cards.

“No wonder that the Consumer Sentiment Index is so depressed. The wonder is that retail sales have been so surprisingly strong during April and May,” Yardeni said in a note. Retail sales for April rose at an annual pace of 8.2%.

Wildcards for gas prices

The price of gasoline is influenced most by the price of oil, the outlook for crude looks less than certain.

Before the Ukraine invasion, Russia had been exporting 5 million barrels a day of oil to the world market, along with more than 2.5 million barrels in refined products. Sanctions by the U.S. and allies have limited Moscow’s ability to sell its crude, and that has created tight supplies on everything from diesel to jet fuel.

Now, the European Union’s efforts to end Russian oil purchases altogether is just one wild card for the price of fuel, which is also in tight supply due to a decline in refining capacity.

“You’re getting hit with two issues. There’s a lack of refining capacity, and a lack of refinery investment,” said Helima Croft, head of global commodities strategy at RBC. “Now you have this issue of war. We don’t know the degree to which Russian oil is going to become unavailable. We know it’s unpopular. … We don’t know how sweeping European sanctions are going to be.”

Croft said it’s unclear whether there will be second level sanctions against countries such as India and China that continue to buy Russian crude. “We don’t know if Russia is going to play ball with an orderly wind down by Europe. We don’t know if they want to bring forward cutting off Europe,” she said.

Refining risks

U.S. drivers used about 9 million barrels of gasoline per day last week. That’s down from 9.2 million barrels a year ago but up from 8.7 million in the prior week, according to the Energy Information Administration.

This comes as U.S. refining capacity has contracted overall by about a million barrels over the last several years. The Philadelphia Energy Solutions refinery explosion in 2019 took that refinery offline, resulting in the loss at one facility alone of 335,000 barrels a day.

Analysts say that some refineries may switch gasoline production to diesel because of scarcity and high prices of the trucking fuel, but that would be limited amounts. Diesel fuel is in very short supply, and the price per gallon has jumped to $5.57 per gallon, according to AAA.

“Physical markets are very tight this summer and against the backdrop of strong demand there may be some hot spots in terms of availability,” said DeHaan. “It’s all about refining capacity. We don’t have enough of it. … Pipelines, refineries — if there’s any infrastructure that breaks this summer — it could lead to limited disruptions.”

That would also change the outlook for a roughly $5 per gallon national average to a price that could be much higher.

“I think that you could get into the realm of apocalyptic numbers, but you probably need a hurricane. I think trips start to be canceled when hotels are charging $400, when air fares are $700 instead of $200, and when it costs $100 to fill you tank,” Kloza said.