This week, gasoline prices in the U.S. rose to their highest levels in eight years. This was due to rising fears that an Eastern European military conflict could increase energy costs. According to AAA on Wednesday, the average cost of a gallon gas was $3.49. This is four cents more than the previous week, and about a dollar less than a year ago. According to the Energy Department, it is the highest gas price since October 2014.
California has the highest fuel prices in the United States, with an average of $4.71 per gallon for regular gasoline. According to AAA, prices reached $4 in Oregon ($3.96) Washington ($3.96) and Nevada ($3.90). Gas prices were lowest in the southern states, including Mississippi (3.16) and Oklahoma (3.17), as well as Kansas (3.18).
The first month of the year is when gas prices tend to drop as Americans prepare for colder weather. But this year, it’s different. Oil traders worried about the tensions between Russia, Ukraine and other countries, raised the price of oil Tuesday to more than $96 per barrel. However, it dropped to $93 in the afternoon. Energy analysts believe that military action could increase crude oil prices to well over $100.
“Recently, crude oil prices have moved on the basis geopolitics. There are many what-if scenarios. What if Russia invades Ukraine? We have sanctions. CBS MoneyWatch spoke with Tom Kloza, global head for energy analysis at the Oil Price Information Service.
Russia produced more oil than one-tenth the world’s in 2020 — an important share that could be affected by military conflict or threatened sanctions from the U.S. with its allies.
Errol Barnett, CBS News’ transportation correspondent, reported that while the U.S. isn’t a major importer, it could be a significant one if the world market value for a barrel rises.
Crude prices
According to the Energy Information Administration, about half of the gasoline price comes from crude oil prices. The cost of transportation, refining and taxes in the United States and other states make up the rest. So, anxiety in the oil market directly leads to higher prices for motorists.
AAA spokesperson Andrew Gross stated that “higher oil prices will eventually result in higher prices at the pumps.”
He said that oil becomes more expensive, and it is reflected immediately at the pump. However, when oil prices drop, it seems like gasoline prices take forever to reflect the change.”
Refinement and production
Although oil-producing countries are slowly increasing their production, global oil production remains below pre-pandemic levels. This lags consumption.
OPIS’ Kloza stated that refinery closings also affect U.S. drivers. The nation’s refining capacities have been reduced by about 3% since last year’s hurricanes on the Gulf Coast and Shell’s decision not to close a large refinery in New Orleans . He said, “It’s enough for it to make a distinction.”
Analysts predict that large oil refineries will open in the world next year. However, prices for crude oil will continue to rise until then, they say. Some Wall Street banks expect crude oil prices to surpass historical records and reach $120 per barrel.
Kloza stated that “if I could bet on it this year, I would wager that we will see the highest average gasoline price for the country ever seen”, but that it is not the new normal. In July 2008, the record-breaking average gas price in the United States was $4.11 per gallon.
What can the government do?
Many Democratic senators called for a suspension in the federal gas tax. This would allow motorists to save around 18.5 cents per gallon. Similar moves have been made by states from Washington to Rhode Island.
Biden’s administration is also engaged with other countries to increase oil production or open up reserves. This could potentially be repeated November release from the oil emergency fund, which temporarily lowered gasoline prices. The government has limited options, according to Gross of AAA.
He stated that there aren’t many tools that any government, Republican or Democratic, can use because so much of the cost of oil is included in what we pay at pump. This is a sign of the mess we’re in because we are so dependent on fossil fuels.
