Increased Demand and Short Supply Leads to 7-Year High in Gas Prices — Will It Get Worse?
Gas prices keep climbing, and average Americans are paying more at the gas pump than they have in seven years. According to a report from AAA, gas prices nationwide had reached an average of $3.22 on Wednesday, Business Insider reported, which is the highest average price since 2014.
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In some places, CNBC noted, Americans are paying much more. California, for instance, has an average price of around $4.22. In the state’s Mono County, prices have gone as high as $5.
So what’s causing these spikes in gas prices? Several factors are at play, but it all boils down to supply and demand.
Americans have been eager to get out and travel after being cooped up during the early spread of the COVID-19 virus. Demand for gas plummeted in spring 2020, reported Insider, but by summer 2021, data from the Federal Highway Administration found that highway traffic was back to normal; however, supply remained constrained as demand for fuel rose.
On top of skyrocketing demand, there have been several supply constraints. According to a previous report from GOBankingRates, Hurricane Ida shut down a large part of U.S. oil drilling and refining capacity in the Gulf of Mexico in late August.
Crude oil inventories are also running low. According to the Energy Information Administration, in late September, one of the main crude depots in the U.S. was down by 40% from the beginning of the year. In addition to the low domestic oil supply, OPEC and other oil-exporting countries decided against raising output to meet demand in November.
This sent crude oil prices even higher. On Wednesday, West Texas Intermediate crude futures traded for $77.60 per barrel, compared to $40 per barrel one year ago, CNBC reported.
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Last updated: October 8, 2021