Why Are Gas Prices so High?

Gas prices have been soaring for months with no end in sight. When will we finally get some relief from the increased cost of fuel?

The price of gas and diesel often drives how much food, clothing, and delivery services cost. This means you’re getting hit more than you might imagine when the price of gas rises. As much as many Americans want to blame the President directly for these increases, there are more concrete reasons for the price increase, most of which have very little to do with politics on either side of the aisle.

Are You Better Off?

Before we dig into the increased prices of fuel around the country, it’s interesting to note that most households are currently better off than they were in 2008. This was another time when the price of fuel rose and when the automotive world all but shut down, creating serious panic and problems for many automakers. The information we’re about to show you does tell us that most Americans are in a much better financial situation now than they were in 2008, which might be a bit surprising to some.

Inflation Must be Understood

To understand where we are today compared to 2008, we must figure out the inflation rate and know what the dollar means in comparison. While our grandparents might have been able to feed a family of four on $20 and their homes cost $20,000, that’s not the world we live in right now. To beat the 2008 numbers, gas prices would need to reach $5.33. Unfortunately, there is a real risk that $6.00 per gallon is possible, and it has nothing to do with Congress or the President but the cost of something else.

Crude Oil Prices are Rising

Some want to blame the Russian invasion of Ukraine on the price of fuel, but the fact is the cost of crude oil has been on the rise since October. Russia didn’t invade Ukraine until February. The price of oil has been hovering around $120 per barrel, which is up from $70 per barrel only one year ago. This is the biggest driver of the price of gas, not politicians or the war in Ukraine, as so many people would be led to believe.

The Political Impact on Gas Prices

We can’t say there isn’t a political facet to the increased price you see at the pump because there is. The Russian invasion of Ukraine led to sanctions from the United States and Europe, which included the crude oil coming out of Russia. If you think that has a massive impact in the US market, you’d be wrong. Our country receives less than four percent of its oil from Russia, and most of the oil we use is produced domestically. The global market of Russian oil is about 12 percent overall, making it more expensive in many other countries. Those wanting to blame the price at the pump on the sanctions are also mistaken.

Lack of Production is a Huge Problem

If you want to point the finger at the biggest contributor to the increased price of gas, other than crude oil prices, you will have to look at the production of this product. The demand for oil is much greater today than it was a year ago and during the COVID-19 pandemic. The global shutdown did more than cause many small restaurants to go out of business; it caused oil companies to shut down a number of refineries, which meant much less production.

How Many Refineries Were Shut Down?

Shutting down oil refineries wasn’t only a pandemic-driven activity, it’s been going on for several years. As refineries were made more efficient, fewer of them were needed. This meant shutting them down, but the shutdowns outpaced the new models being built, and now we’re in a bit of a pickle. An example of this sticky situation is occurring along the East Coast, which is nearly 10 million gallons of gasoline short of its normal level. This is mostly due to having only half the number of refineries that used to supply gas and diesel to the coastal states.

Oil Companies are Reluctant to Do Much About the Problem

As much as it would be nice to point to the faces we see on the television and blame them, none of the politicians have much to do with why we’re facing a shortage of gas with prices going sky high. The oil companies that continue to report record profits each quarter are holding us hostage. There isn’t a faucet that can be turned on to get oil, except to add more drilling sites and use some of the revenue to increase production.

Oil Companies have Tied Hands As Well

Before you get angry at the oil companies, keep in mind the shortage of labor and materials being felt around the country impacts them as well. It takes a workforce and the materials to put piles in the ground and begin to pump more oil. Even so, the oil industry does intend to increase production in the United States by 1.8 million barrels per day this year, but these changes were already planned and accounted for before the major price increases. Unfortunately, this doesn’t do much for you when you head to the pump and see the price has risen again.

Gas Prices Don’t Drive the Economy

While it might feel like the higher prices of fuel drive the economy when you head to the grocery store or need to fill your gas tank, that’s not the case. Right now, oil companies are reporting record profits, but during the pandemic, the price of oil was negative. The low prices of fuel didn’t give us a booming economy, and high prices don’t either. At some point, an expected balance will be struck, but everything that was impacted by the COVID-19 pandemic takes time to fix.

If you want to blame something or someone for the high price you see at your local station, blame the pandemic and the oil companies. Right now, these are the two main drivers of why you see the gas prices that you do.