Gas prices have hit record highs in the U.S., with the average price hitting $5 per gallon over the weekend. There are ways to consume less gasoline without buying a new car. But with high gas prices driving up the costs for other goods and services, it's hard to evade the economic impact.
Why are gas prices so high? On an elementary level, oil prices rise when demand exceeds supply. Several issues are affecting supply and demand and driving up gasoline prices in 2022.
The Russia/Ukraine War
In normal circumstances, Russia is the world's third-largest oil producer behind the United States and Saudi Arabia, producing around 11 percent of the world's oil supply. The U.S. banned the import of Russian oil in March as part of a sweeping economic response to the war in Ukraine. Less oil available to meet demand means higher prices. Prominent oil-rich countries one might turn to to make up for the shortfall like Venezuela and Iran are also under U.S. sanctions.
The Pandemic Aftershock
The pandemic plunged the demand for oil and sent the price plummeting. Manufacturers responded by curtailing production, especially of costlier shale oil which had been responsible for increased U.S. production in the 2010s. Oil demand has risen quickly worldwide, with vaccines and lockdowns lifting (especially in the U.S. and China). Production has not yet ramped up to meet that increased demand.
Oil companies are subject to the same supply chain issues, hiring difficulties and costs as other industries, impacting production and refining. Oil companies are reluctant to invest in producing more oil when stricter environmental restrictions are likely over the next decade, and more buyers pivot to electric vehicles. Oil companies face pressure from shareholders who prioritize record profits, dividends and paying down debt over ramping up production to help the global economy.
Yes, you can remember when people were complaining about $2 per gallon gas prices. But much of the perceived price increase is overall inflation over time. In June 2000, the average gas price nationwide was $1.66 per gallon. A dollar in 2000 had the purchasing power of $1.70 now. So if the price stayed level with inflation, the same gallon of gas would cost $2.82 per gallon in 2022 dollars.