National Gas Prices Break $5 a Gallon – What’s Behind the Ongoing Price Surge?
Now that the once-unthinkable has happened in the United States — average gasoline prices that are above $5 a gallon — many Americans no doubt wonder how and why prices surged so high so fast in 2022.
Much of it has to do with Russia’s invasion of Ukraine, Business Insider reported, citing recent commentary from analysts at both Goldman Sachs and Wood Mackenzie. But that’s not the only reason.
Other factors include ongoing global supply chain problems tied to the COVID-19 pandemic as well as overall inflation, which is running at its highest rate in more than 40 years.
It all adds up to wallet-busting gas prices, which hit a new all-time high of $5.014 a gallon on June 13, according to AAA.
Prices at the pump are directly tied to crude oil prices, which are up more than 50% this year, Business Insider noted. That’s largely because of the Russia-Ukraine war, which has compounded problems that existed even before the invasion.
In a report, Goldman Sachs said there are “unprecedented” bottlenecks at oil refineries, where crude oil is converted into gas and other products. Many facilities are still struggling from the COVID impact and can’t put out enough product to meet rebounding demand for gas, diesel and jet fuel.
One reason production continues to lag demand is that a lot of refineries shut down during the pandemic. According to Wood Mackenzie, roughly 3 million barrels a day of refinery capacity shut down in 2020 and 2021. Getting those refineries back up to speed in the current market is no easy task.
“You introduce a lot of operational issues that come back to haunt you a few months later,” Claudio Galimberti, a senior analyst at energy consultancy Rystad, told Business Insider. “Running a refinery is very complicated.”
Complicating matters is the fact that Russian exports of refined products have seen a steep drop amid sanctions from Western nations following the Ukraine invasion.
Some critics have pointed the blame for high prices at President Joe Biden — specifically his policies designed to reduce U.S. dependence on fossil fuels by boosting the electric vehicle industry at the expense of domestic oil production.
Biden recently announced plans to speed up oil production, Reuters reported. But he also pushed back against the oil industry itself – including ExxonMobil – for capitalizing on a supply shortage by raising prices and boosting profits rather than increasing production.
Although there has been progress on the part of some refineries to crank production up again, gasoline prices are not likely to fall significantly anytime soon, analysts say.
“This is going to be a tight market for certainly the next two years,” Wood Mackenzie Research Director Mark Williams told Insider. “We’ll be maintaining this high price environment certainly through to the middle of next year.”
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