Why did gas prices go up? If you’ve been feeling the pinch at the pump and wondering why it’s costing you an arm and a leg to fill up your tank, you’re not alone. Gas prices have been on a rollercoaster ride, influenced by many factors. In this post, we’ll explain the reasons behind the rising gas prices. Let’s get started.
Why Did Gas Prices Go Up?
After seeing gas prices rise over the past few weeks, they're falling again. That’s progress.
— President Biden (@POTUS) October 19, 2022
But they’re not falling fast enough and families are hurting.
I'm directing my Administration to take more action to lower costs, strengthen energy security, and address supply issues.
If you thought it was a mix of inflation, the Russia-Ukraine conflict, crude oil costs, travel, and other factors, you’re correct! The answer to the long-standing question, “Why are gas prices so high?” isn’t straightforward.
Numerous factors contribute to the high gas prices we’re experiencing. So, let’s explore each of these factors one by one to understand the whole picture.
1. Inflation
First, let’s discuss inflation, which has reached 3.7% over the past 12 months. Gasoline prices have experienced a significant monthly increase, rising by 10.6% from July to August!
However, if we consider the costs compared to the previous year, gasoline is actually down by 3.3%. So, is inflation causing the recent price hike at the gas pump? Yes, to some extent. But are we facing the same dire situation as we did in 2022? No, we are not.
It’s important to note that while inflation plays a significant role in high gas prices, there are other factors at play as well. It’s not just about inflation; there’s more to the story.
2. Russia-Ukraine War
Let’s make it crystal clear: Gas prices were already on the rise even before Russia’s invasion of Ukraine. However, the war between Russia and Ukraine certainly added fuel to the fire (pun intended!).
Back on March 8, 2022, the average price for a gallon of regular gas reached an all-time high (at that time) of $4.17, surpassing the previous record set in 2008.
It was a sudden jump of 10 cents overnight and over 50 cents compared to the previous week! We all felt the impact of that price hike.
On that very same day, President Biden took action by signing an executive order to prohibit the import of Russian oil, natural gas, and coal to the United States.
Why does this matter? Well, Russia happens to be one of the world’s largest oil exporters. You can think of it as a colossal gas station (minus the stale hot dogs).
Remember, gas prices then embarked on a wild streak of record highs, peaking at $5.01 during the summer of 2022. After reaching that peak, gas prices gradually declined and settled around the mid-$3 range during this past summer.
However, it’s worth noting that the Russian-Ukrainian war is still ongoing, and as a result, gas prices are once again on the rise.
3. Crude Oil Prices
The quest to understand the reasons behind high gas prices doesn’t end there. The prices we see at the gas pump are also influenced by the rising cost of crude oil.
As mentioned earlier, Russia is a major player in oil exports, and the war caused oil prices to skyrocket to over $120 per barrel. Currently, the cost of a barrel of crude oil is around $91.
4. Oil Refineries
Oil refineries have played a significant role in the recent surge of gas prices over the past couple of years. It’s not just about having a low supply of gas; it’s also about having limited capacity to refine gasoline.
We witnessed the impact of this in 2022 when gas inventories reached their lowest seasonal level since 2019.
Part of the reason for this was President Biden’s focus on transitioning the country away from gas-powered vehicles. Shortly after taking office, he halted the construction of the Keystone XL oil pipeline.
As a result, gas companies felt discouraged from investing large amounts of money in constructing new refineries because they believed they were being pushed out of business by clean energy regulations.
But hold on, there’s more to the story. In 2023, there was a higher demand for gas, prompting refineries to operate at a higher capacity to meet that demand.
Consequently, there have been outages and maintenance issues due to the increased production, which further contributes to the current reduced fuel supply and higher fuel prices.
5. Israel-Hamas War
After a surprise terror attack in Israel in early October, oil prices experienced a slight increase of 3%. However, industry experts don’t anticipate this event to have a significant impact on the overall cost of oil or gas.
If you’re currently concerned about gas prices, it’s likely because any increase reminds you of when prices became exceptionally high in the past, making you wonder if it will happen again.
When we consider the difficulties faced by other countries, the current price hike at the gas pump isn’t the worst thing. While some experts predict that prices will remain elevated until the end of the year, they also expect a gradual decline in prices overall.
Nevertheless, when you’re calculating your budget, you certainly feel the impact of these changes right now. We’ll share some tips on saving gas shortly, but first, let’s delve into the government’s response to the higher gas prices.
Final Thoughts
Gas prices can be a real headache, impacting our wallets and our daily lives. Understanding the factors that contribute to these price fluctuations is essential in navigating this volatile market.
From geopolitical conflicts to oil supply and demand, various forces shape the cost of fuel. While we can’t control those external factors, we can adopt strategies to mitigate the impact on our budgets.