Read Time:7 Minute, 56 Second

In 2022, gas prices reached all-time highs. The average price per gallon of regular unleaded gasoline in the country reached $5, according to AAA data.02 That surpassed the previous record of $4 on June 14, 2022.11 per gallon, which had been set in 2008. The fact that diesel reached a peak price of $5 made things even worse for truckers.82 per gallon in June.

So, why are gas prices so high? Here are the details. 

Why Are Gas Prices So High (4 Reasons)

COVID Crushed Oil Demand And Crushed Oil Production

Gas prices are not managed by a single entity, business, or even the government. Americans are suffering more and more when they fill up their cars for a number of reasons.

Start by blaming the COVID-19 pandemic, which two years ago severely disrupted oil markets. The damage the virus caused is still being repaired, unfortunately. 

As many routine activities were halted and millions of people who typically drive to work chose to stay at home when COVID first struck, it significantly reduced global oil demand. Crude oil prices fell as a result. In fact, benchmark West Texas Intermediate crude prices briefly dropped below $0 in April 2020, which would have seemed unthinkable in most circumstances. 

Due to COVID-19 restrictions that made oil demand so weak, there was a shortage of storage space for unwanted crude, which caused traders of oil futures to rush to liquidate their crude positions. Some eventually had to make payments to buyers in order to let them keep their future oil deliveries. 

Oil remained incredibly cheap for the majority of 2020, despite the short duration of negative prices. Due to the fact that nobody wanted to give away oil barrels at such absurdly low prices, energy companies and major OPEC oil exporting nations reduced their production as a result.

Oil demand has since exploded, particularly in the U.S., as the world has gradually recovered from the pandemic.S. It should come as no surprise that consumers are making up for lost time now by traveling and engaging in other typical activities in 2020 and 2021. The level of US oil demand is roughly back where it was before COVID. However, the restart of oil production takes much longer than that of oil consumption.

Wells that are idle are difficult to restart. New good drilling takes time. Additionally, oil producers have been careful not to open the taps too soon for fear of being burned again by a new price decline. Oil production in the U.S. has only partially recovered from its decline in 2020. The exports that OPEC and its associate members withdrew from the market during the worst of the pandemic are only now being gradually put back on the market.

Russia’s Invasion Of Ukraine

One of the world’s major producers of oil is Russia. It exported nearly 8 million barrels of oil and other petroleum products to markets around the world on December, 5 million of which were crude oil.

Only a small portion of that was sent to the US. China received 20% of the oil in 2021, while Europe received 60%. However, because oil is traded on international commodity markets, its loss has an impact on prices everywhere.

Western nations initially excluded Russian oil and natural gas from the sanctions they enacted to protest the invasion out of concern that they would disrupt global markets.

However, the United States formally forbade all imports of Russian energy in March. Additionally, the EU announced a ban on Russian oil shipments last week, which accounted for roughly two-thirds of the oil that European countries imported from Russia. Russia’s oil is gradually disappearing from international markets.

Energy Companies Not Rushing To Drill

Energy companies are being cautious about increasing their oil output even now when prices are skyrocketing. It helps that they are gradually using new rigs to drill more wells. However, they are also limiting the amount of money they put into new products in order to give their investors larger dividends and stock repurchases.

The benefit to stockholders is clear. However, less money will go toward producing more oil, which is bad for consumers.

The U.S. Trying to Move Away From Oil

Political factors are another factor that has raised gas prices.

Upon taking office, President Joe Biden vowed to transform the U.With the aim of halving energy use-related emissions by 2030 and moving the U. S. economy away from fossil fuels, By 2050, S. will be carbon-free. Even though it has continued to anger many environmentalists by approving permits to drill for oil on federal lands, the administration has also tried to limit the areas where energy companies can drill in the future.

The controversial Keystone XL pipeline, which would have transported more than 800,000 barrels of Canadian crude to the U.S. per day, was also famously rejected. That oil can still cross the border, but it will have to do so via rail, which is more expensive than doing so via pipeline.

To put it simply, at a time when markets are undersupplied, the administration has been less supportive of oil production and transportation than its predecessor. It’s impossible to say how much that increases the price you pay at the pump, but it’s a factor.

Will Gas Prices Fall Soon?

Unfortunately, it doesn’t appear that gas prices will decline significantly any time soon.

Wall Street wants publicly traded energy companies to gradually increase their production so that they can continue returning cash to shareholders despite the fact that the war in Ukraine shows no signs of coming to an end and that the world’s growing demand for oil is straining the supply.

We did in fact say earlier this year that “we could take a run at $5 per gallon for the national average.” Since that has happened, it appears that the peak in gas prices will be around $5.25 to $5.50 per gallon this summer.

Right now, the only thing that could significantly lower gas prices is an economic downturn brought on by the Federal Reserve’s impending interest rate hikes, about which some economists are starting to issue warnings.

And nobody wants to save money at the gas pump in that way, I think.

What Can Be Done By Governments?

To help struggling consumers, some have reduced taxes or implemented fuel rebates and subsidies. According to estimates by Bloomberg Economics, Mexico’s government was spending far more on subsidies for gasoline and diesel than it was making from higher prices for its crude exports. US Vice President Joe Biden called for a halt in the collection of gasoline taxes in June. According to economic theory, high prices will ultimately depress demand, which will result in a decline in prices if supply cannot be increased. Although lowering fuel taxes might be popular, it could also lead to higher demand, which would support high prices.

Five Ways to Save Money on Gas

Use Gas Apps to Find Cheap Gas Near You

There are a few useful apps that can display nearby gas stations and their current gas prices. Users can update nearby gas prices on GasBuddy, for instance, and can search by city, ZIP code, or current location. Users of GasBuddy can also get a free rewards card that offers gas discounts. The mail-delivered card has an immediate checking account connection.

According to GasBuddy’s website, using the rewards card at the gas station can help customers save up to 25 cents per gallon. According to USA Today, GasBuddy makes money by selling station operators’ customer data preferences.

Enroll in Gas Rewards Programs

Enrolling in the rewards program of a preferred gas station chain can be advantageous. By giving discounts each time they fill up, these programs honor devoted patrons.

With Exxon Mobil Rewards+, you can earn three points per gallon of fuel and two points for every dollar you spend at gas stations and car washes. With a maximum of 5,000 points used at once, you can save $50 by using every 100 points you redeem for $1 off your purchase.

Take Advantage Of Grocery Store Rewards Programs

Many grocery store chains offer rewards for loyalty programs that include gas. Every $1 spent in Kroger stores earns one fuel point under the company’s fuel points program.

The best redemption value is at participating Shell stations, where 100 points can be redeemed for 10 cents off per gallon, while up to 1,000 fuel points can be redeemed for $1 off per gallon at Kroger gas stations.

There is no cap on the number of fuel points that can be earned each month, but they must be used each month to get the most out of your discount because they expire on the last day of the month after being earned.

 Buy Gas With A Rewards Credit Card

Gas stations can benefit from responsible credit card use. Gas is one of several spending categories on some credit cards that have high percentage earning rates.

To avoid paying additional fees to cover interest, make sure to pay off the entire balance on your credit card each month. See our selections for the top gas credit cards.

Fill Up On Mondays

In most states across the nation, gas is most affordable on Mondays, with Wednesday, Thursday, and Saturday being the most expensive days, according to a survey conducted by GasBuddy in February 2022.

Related Posts

Average Rating

5 Star
4 Star
3 Star
2 Star
1 Star

Leave a Reply

Your email address will not be published.

Pin It on Pinterest