It’s raising questions about the cost of fuel and who is to blame. Consumers also wonder when relief might be available.
It’s not surprising that rising gas prices have a real impact on household budgets. A Wall Street estimate estimates that a typical family could incur additional expenses of $2,000 this fiscal year due to higher costs. According to AAA, gas prices reached an all-time high of $4.31 per gallon on Thursday. The previous record for gas prices was set in 2008 at $4.10 per gallon, shortly before the financial crisis.
Fuel prices suddenly become a topic of conversation. Families are now budgeting for higher fuel costs and cutting other spending. Higher fuel prices are causing some Americans to drive less. Morning Consult reports that one in three Americans said they cut down on their car use last month. Most blamed gas-pump sticker shock.
How did we get to this point? The reason for today’s high stratospheric gas price is the COVID-19 Pandemic. Russia’s war against Ukraine has pushed prices higher in recent weeks.
He stated that “the overall aspect is that demand and supply have changed.” CBS MoneyWatch. “Everything was thrown off balance by COVID. We would be in a completely different place if it hadn’t happened.
These are the three main reasons gas prices are rising and experts predict they will fall.
Post-pandemic gas demand
The pandemic struck the U.S. in March 2020. As Americans sought refuge at home, gasoline demand plummeted. According to AAA, the average driver drove half as much .
This sharp drop in demand led to gas prices plummeting to an average $1.94/gallon in April 2020.
As the economy improved, and as Americans felt safer shopping and traveling, people started to drive again. Gas prices began to rise as a result of increased demand. The average gas price per gallon was $2.82 by March 2021. This is a 45% increase over its pandemic low.
Reduced oil production
OPEC and oil-producing countries such as Russia reduced production when oil prices plummeted during the pandemic. This resulted in a drop of 10 million barrels. This represents 10% of global oil supply.
De Haan stated that OPEC had been slow to increase production as the world economy recovered from the pandemic. “While we are nearing pre-COVID levels of consumption, production is still slow. OPEC did not increase production until July 2021. They were already way behind the curve, and it was too late.
U.S. producers are increasing production but warn that it could take some time for supplies to get to the market and drive prices up at the pump.
Global market affected by U.S. sanctions against Russia
The backdrop of rising gas prices and Russia’s war against Ukraine has led to a rapid rise in gas prices. On Tuesday President Biden announced that the United States would ban Russian oil and gas imports. This was in direct response to Russia’s main source of revenue during the conflict.
The United States imports less that 10% of its oil from Russia. Why is the price of gas rising so fast in the U.S., when the country doesn’t rely on Russia for its fuel? De Haan explained that the greater global oil market is responsible for the rise in gas prices.
He stated that the U.S. sanctions have wide-reaching consequences for Russia’s ability to export oil. “We don’t import much, but someone else does, and we make it difficult for Russian oil flow to the global marketplace, and prices are reacting.”
Tipping point to gas consumers
It is possible that the average per gallon price could be as high as $5. It may be higher in some areas, such as California, where drivers pay $5.69 per gallon.
De Haan stated that the future price of gasoline will depend on many factors such as whether the U.S. enters into a agreement with Venezuela in order to import fuel from the country.
He also noted that today’s fuel prices, after being adjusted for inflation are still lower than their peak in 2008. The price of a gallon was close to $5.25 in today’s dollars. De Haan believes most consumers will continue to drive until the price of $5.25 per gallon.
De Haan stated that “We are not near that.” “$5 per gallon is the old $4. Somewhere north of $5 could be a tipping points” that forces drivers to reduce their speed.
When will gas prices drop?
Experts predict that gas prices will remain high for several weeks, if not months. Inflation will likely rise in March and April, before stabilizing, Bill Adams, chief economist at Comerica Bank stated in a report.
Adams stated that inflation will accelerate in March/April as the knock-on effects from the Russia-Ukraine conflict push prices higher at gas pumps, supermarkets and on utility bills.
However, inflation could ease later in the year and dip to 5.5% by September according to Ian Shepherdson (chief economist at Pantheon Macroeconomics).
De Haan stated that it is unclear when gas prices will drop because they are closely linked to Russia’s war against Ukraine.
He said, “It’s hard to know — it could take weeks or months.” It could take several months for countries to do business again with Putin if he remains president and signs a treaty of peace. They have to assess his reliability. The change in gas prices could be much faster if Russia’s regime is changed.
