By: Devon Valinsky
Around this time last year, I wrote about the beginning of the rise of gas prices that we have now seen continue over the past year.[1] These rising gasoline prices have reached an all-time high, the likes of which we have not seen since the summer of 2008.[2] In the U.S. Energy Information Administration’s (EIA) most recent publication of the average price per gallon of gasoline across the United States, the average price per gallon in March of 2022 reached $4.322.[3] Since the EIA began collecting and publishing this data in 1993, the average price per gallon in a month has only surpassed the $4.00 mark twice prior to now.[4] These two months, June and July of 2008, saw an average price per gallon of $4.105 and $4.114, respectively.[5] Just as there was at this point last year, plenty of finger-pointing has occurred as to who is to blame for the current spike in gas prices.
However, once again, the finger-pointing of blame is mostly just political posturing as these price increases are the result of factors external to U.S. policy. Just as I pointed out when I first covered this issue last year, oil prices have risen once again in the months November through February. Oil prices for WTI crude and Brent crude have increased 15.78% and 19.84% respectively from November 2021 to February 2022.[6] The price of crude oil is the number one factor in gasoline prices, so it is only logical when these prices rise, so to will gas prices. It is worth noting that many factors play into crude oil prices. Not only does the domestic production level in the United States play a part, but so too does the overall international production level, which is largely dependent upon the decisions of the Organization of the Petroleum Exporting Countries (OPEC). Production of crude oil from OPEC members accounts for roughly 40% of the overall production in the world and around 60% of internationally traded petroleum.[7] Although OPEC crude oil production has been steadily rising since the COVID-19 pandemic, when it drastically reduced its production to meet the low demand at the time, the current production levels have still not reached the levels we saw pre-pandemic, despite demand having almost entirely rebounded.[8]
Not only is the lowered production of crude oil by OPEC playing a large part in the increased gasoline prices we are seeing, but so to is the ongoing conflict in Ukraine. Russian crude oil exports make up nearly 8% of the global market.[9] Due to the steep international sanctions placed upon Russia because of its invasion of Ukraine, the supply of international crude oil has effectively been cut by 8%. This has further exacerbated the current shortage of crude oil as demand continues to rebound from the pandemic while supply has not quite caught up. These two factors, one of which has been sudden, and the other which has been ongoing, are playing a major factor in the increase in crude oil prices, and as a result, the increase price we are paying at the pump.
[1] Devon Valinsky, Why are Gas Prices on the Rise and is This Out of the Ordinary?, Joule (Mar. 31, 2021), http://sites.law.duq.edu/joule/why-are-gas-prices-on-the-rise-and-is-this-out-of-the-ordinary/
[2] U.S. All Grades All Formulations Retail Gasoline Prices, U.S. Energy Info. Admin. (Mar. 28, 2022), https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m
[3] Id.
[4] Id.
[5] Id.
[6] Spot Prices, U.S. Energy Info. Admin. (Mar. 30, 2022), https://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm
[7] What drives crude oil prices: Supply OPEC, U.S. Energy Info. Admin. (last visited Apr. 3, 2022), https://www.eia.gov/finance/markets/crudeoil/supply-opec.php#:~:text=OPEC%20member%20countries%20produce%20about,the%20total%20petroleum%20traded%20internationally.
[8] OPEC Crude Oil Production, YCharts (last visited Apr. 3, 2022), https://ycharts.com/indicators/opec_crude_oil_production
[9] The Russian Oil Supply Shock of 2022, Federal Reserve Bank of Dallas (Mar. 22, 2022), https://www.dallasfed.org/research/economics/2022/0322#:~:text=Russia%20accounts%20for%20about%2010,petroleum%20products%20(Chart%201).