Driving in the past three months has become a more expensive task than ever before with gas prices here in the US reaching record highs. Over the last three years, the Oil and Gas industry, and everyone in it including ourselves, has gone through a whirlwind of a time to say the least. Pandemics, wars, new administrations, and changing policies have all caused oil and gas prices to plummet, and sky rocket. One key phenomenon in the last three months is the rising gas costs for our cars here in the United States. Why is this happening? Will this slow down?
What is happening?
It was back in March that prices first broke the record of $4.11 a gallon, which had stood since 2008. More than one out of every five gas stations nationwide is now charging more than $5 a gallon for regular, and just more than half are charging $4.75. There are 10 states, plus Washington, DC, where the average price is already at $5 or more! Gas prices in the United States are at record highs. And even when adjusting for inflation, they are on average at levels rarely seen in the last 50 years, including during the energy crisis of the late 1970s.
This increase in prices has led to an increase in costs of transportation which has directly had an effect on consumer goods and resources.
Why is this happening?
A lot is to blame on the COVID-19 pandemic, which threw oil markets severely out of whack two years ago. They still haven’t fully recovered from the damage the virus inflicted. The single biggest factor driving the spike now is the price of crude oil. As of April, according to the Energy Information Administration, the cost of the raw material accounted for 60 percent of the price of a gallon of regular gasoline. That compares to 52 percent the same time a year ago, and just 25 percent in April 2020 — when the pandemic sapped demand for fuel, along with most other goods and commodities.
The war in Ukraine has also contributed to the spike in energy prices, and continues to upend global oil and gas markets four months after Russia’s invasion. Oil supply took a massive hit when the U.S. and E.U. banned imports of Russian oil. This coupled with the world’s reliance on Russian oil led to an increase in prices.
How long will this continue for?
According to an AAA spokesperson, domestic gasoline demand dipped recently which took some of the pressure off of pump prices with about 80% of stations now selling regular for under 5 dollars a gallon. However, July is usually the heaviest month for demand as more Americans hit the road for their vacations, so this downwards trend may be short lived. President Joe Biden’s administration has authorized the largest release of oil from global oil reserves in history, but that action has not yet proved to push prices down toward pre-2022 levels.
A sign of hope is that OPEC has agreed to modestly increase production in July and August, with the President planning to visit the oil rich nations to foster a better relationship with leaders in the Middle East. But a handful of member countries have been producing well below their current allotments.
What do we need to do?
With rising interest rates, no new policy to help our internal industry, and high levels of inflation, we will need a few quick and decisive changes from this administration and the government that will help our industry and allow us to meet the demand. However, at this rate, it looks like a slower process than what we need. Have a look at a graph below highlighting the reasons behind changes in prices and read our blog on the Russian oil crisis for more information!