If you’re thinking “why are gas prices so high” right now, you’re not alone. The rising price of gasoline has many causes, including natural disasters, reduced supply, the approach of summer, and the ransomware attack on the Colonial Pipeline, the major fuel supplier for the East Coast. Critics have also pointed the finger at President Biden’s decision to approve the Keystone XL pipeline, which could further increase gas prices.
When a natural disaster strikes, fuel prices go up. This is not surprising, because people expect gas prices to rise after the disaster. Fuel suppliers take advantage of this and raise prices to capitalize on the consumer expectation. This practice of price gouging is considered helpful by many legislators. Those who oppose this practice should not take the situation lightly. Instead, they should work to ensure that consumers are not ripped off by these events.
Although gasoline and oil stocks are typically high and supply and demand balance over time, major storms can lead to spikes in fuel prices. While summer driving discourages long road trips, storms can also increase fuel costs nationwide. Refineries in the U.S. are concentrated in the Gulf of Mexico. Consequently, hurricanes and late summer tropical storms can disrupt the process of refining oil, which can then be passed on to the rest of the nation.
Supply and demand
The cost of gasoline continues to rise, with the national average soaring from $2.50 per gallon in January to $3.04 on June 9. Many on social media are attributing the rise to President Biden, who was re-elected last year. One Instagram post, titled “Joe Biden’s America,” shows the jump in prices from January to May 2021. The post also contains comments from individuals claiming that the prices were higher when a Democrat was in office.
The shortage of oil is one of the major causes of gas prices rising. Refineries have been struggling to reopen after the pandemic, and are unable to ramp up output. Lack of investments and natural disasters have affected production levels, reducing refinery capacity. Because of this, analysts are predicting that gas prices will rise even higher. According to a JPMorgan report, the national average gas price could rise as much as $6 per gallon in August.
OPEC cut production
The United States and Europe have discussed ways to find alternative sources of natural gas and oil, but it’s unclear how much of this can be distributed to both countries. As the world tries to shift away from fossil fuels, world leaders are desperate to increase production of oil and gas so prices can drop. Sadly, the situation seems to be getting worse rather than better. There are several factors at play.
The Ukraine war has added to the global supply/demand imbalance, which increases the price of gasoline. It was also a factor in prices when Russia invaded Ukraine, and sanctions were placed on Russian oil in response. That exacerbated the situation, driving up gas prices. Republican politicians often blame Democrats for driving up gas prices, but that is not the case. There are many causes of gas price increases and it’s not the fault of OPEC or the Biden administration.
Russia’s invasion of Ukraine
While many people attribute the recent spike in gas prices to the invasion of Ukraine, the reality is that the war has had an impact on the price of energy for quite some time. In fact, gas prices have risen before the Russian army began encircling the Ukraine. The surge in price is due to growing demand for energy due to the economic recovery. In addition to the increase in price of gas, the crisis could also impact food and smartphone costs. A shortage of raw materials could lead to inflation. As of today, consumer prices are rising at the fastest rate in 40 years.
The Russian invasion of Ukraine is likely to continue to increase the price of gas. This increase is affecting any industry that ships products. It will affect the bottom line of any business, and it is already putting a strain on the budgets of many Americans. Personal savings rates have already decreased below pre-pandemic levels, which means that consumers are feeling the pinch more than ever. However, rising gas prices do not have to spell the end of budgets for many consumers.
The highest gas tax rates are in states that are in dire need of more infrastructure. For example, Illinois recently doubled their gas tax as part of an ambitious $45 billion infrastructure plan. Meanwhile, California is about to double its gas tax, pushing gas prices up three cents per gallon. The high tax rates on gasoline are the result of the process of shipping refined oil from refineries to local terminals. Fuel is processed to meet market standards and local government standards.
While this suspension could ease some of the burden on motorists, it would harm funding for road projects. Governors across the country are considering a gas tax holiday as a way to curb rising gas prices. The Florida governor recently proposed a five-month suspension of the gas tax as part of a wider tax relief package. Meanwhile, Illinois has proposed a halt to its automatic 2.2 cent increase in the motor fuel tax.
The cost of refining crude oil is one of the biggest drivers of gas prices, as the demand for fuel increases during the summer months. While crude oil is globally priced, costs at refineries vary by region and season. Additionally, different regions require different gasoline formulations. Refining costs are influenced by the cost of ethanol, which is a component of gasoline. As a result, the price of gas is rising despite the fact that many refineries are working at full capacity.
The rising cost of crude oil is the main factor in the price of gasoline. In April, crude oil made up about sixty percent of the price of a gallon of gas. Last year, that percentage was 52 percent. By the end of next year, crude oil will make up fifty-seven percent of the cost of gasoline. This increase will add three cents to the price of gas in California. In addition to the rising cost of crude oil, other factors also contribute to gas prices.