Driving is one of the most exciting experiences for high schoolers to have once they turn 16. However, many were in for a rude shock at the gas station, having to spend over $ 5 per gallon. So, what caused the price fluctuation from when it was below $ 2.50 per gallon in NJ a few years ago to over $5 now? Join me as we find out.
As with most products and services, gas prices are also driven by the basic economics theory of demand and supply. In addition, however, oil and gas prices are also influenced by global logistics and geopolitics. In this specific case of high gas prices, it basically comes down to a combination of increased demand after the pandemic with lower supplies owing to reduced capacities, lack of access to gasoline production from certain countries, and complications arising from Russia’s invasion of Ukraine. When Covid-19 started spreading in 2020, the demand for gas decreased as more and more countries started implementing nation-wide quarantines. People were unable to go anywhere, so naturally, the demand for gas went down. In response, oil companies, right from the ones that extract oil from the ground to refiners that turn crude oil into gasoline, and global shipping and logistics companies limited their oil operations and reduced production to avoid overproducing and running into financial issues. Later, once the quarantines began to be lifted and people could travel more, the demand for gas shot right back up. However, now, the oil companies did not have the supply of oil for this, as they had shut down much of their operation due to previous lack of demand.
This shortage of gas led to an increase in prices, and reports show that prices went from $1.94 in May 2020 to $3.28 in January 2022 on an average US scale.When Russia invaded Ukraine in February 2022, a chain reaction was set off that would end up increasing the gas prices. In response to Russia’s invasion, the US and other countries stopped importing Russian oil and gas as a way to combat Russia without going into war themselves. Russia is a major producer and banning Russian imports was a very large supply shock. Russia had been supplying a lot of oil to different countries, and now that these resources were banned, there was much less oil to go around in the rest of the world, pushing up prices. Of course, the US has other sources of oil, but the 8% of its total that it received from Russia was now removed. As a result of the increasing scarcity of oil, prices began to rise and have continued to do so.
Why not import from other producers you may ask? Couldn’t countries such as Iran, Venezuela, and others ramp up production? Unfortunately, geopolitics and the history of these countries make them an undesired partner for the US.
So when will drivers be able to stop worrying about gas prices? Of course, it would be great if the war in Europe stops and things return to normal. One action that President Biden took was to release 180 million barrels of oil from the US’s strategic petroleum reserve, which should help by increasing the supply. However, with summer travel, demand is going to go up even further, and it is unsure as to what extent the prices will come down.
