If you’ve had to fill up your gas tank recently, you’ve likely felt the pinch of rising gas prices. Seeing the new gas prices can make you do a double-take and feel like an insult to your wallet. According to the U.S. Energy Information Administration (EIA), as of March 7th , the average gas price across the U.S. is $4.10 per gallon. If you live on the West coast, gas prices are even more expensive, currently at an average of $4.77 per gallon. In March 2022, LA County already hit $5 per gallon. This is a significant increase from the early pandemic when average gas prices were $1.8 per gallon in May 2020, according to data analyzed by the Federal Reserve Bank of St. Louis. But why are gas prices rising? We break down why gas prices are going up right now and what you should know.
More driving, more demand
In the first year of the pandemic, many people were staying home and not driving as much. In the second year of the pandemic, driving habits shifted significantly. According to The Federal Highway Administration, cumulative travel in 2021 was up 11.2%. Travel on all roads and streets increased the same percentage (11.2%) from December 2021 compared to December 2020. The total estimate for the year is a whopping 3,228.8 billion vehicle miles of travel.
Given the increase in miles traveled, it’s clear that people are back on the road. Also, demand for cars reached an apex, with prices we haven’t seen before. Due to a surge in demand for cars, there’s naturally a surge in demand for gas (except for electric vehicles).
Gas supply issues
If you’re wondering why is gas so expensive right now, part of it comes down to gas supply issues. According to the U.S. Energy Information Administration (EIA):
“U.S. petroleum refineries make gasoline and other petroleum products from crude oil and other liquids that are produced in the United States or imported from other countries. Nearly all of the gasoline sold in the United States is produced in the United States.”
So while gas may be produced in the U.S., it also depends on crude oil — some of which is imported from other countries.
Source/credit: U.S. Energy Information Administration
The price of crude oil can be impacted by several things:
- Supply and demand
- Weather disruptions
- Geopolitical events
Also, these exporting countries influence overall gas prices. According to the EIA, “The Organization of the Petroleum Exporting Countries (OPEC) can have a significant influence on oil prices by setting production targets for its members. OPEC includes countries with some of the world’s largest oil reserves. At the beginning of 2020, OPEC members controlled about 71% of total world proved crude oil reserves (plus lease condensate), and they accounted for 36% of total world crude oil production in 2020.”
Crude oil prices are also on the rise, too. According to EIA data as of March 2nd, 2022:
- WTI (West Texas Intermediate) crude oil — which is an oil benchmark in the U.S. — is $110.74 per barrel
- Brent crude oil — which is an international oil benchmark — is $118.94 per barrel
That’s approximately a 7% increase across crude oil. What’s also impacting the surge in prices is supply and demand.
The EIA explains that in 2021 demand for petroleum (made from crude oil) in the U.S. and abroad increased and were back to pre-pandemic levels. However, the demand has increased faster than the supply is available. This means lower inventories and higher prices.
Alongside economic factors like supply and demand that are based on consumers and producers, global events can also impact energy costs. The latest conflict in Ukraine is only adding more volatility into the market, which may also impact gas prices.
How the Russian invasion of Ukraine may affect gas prices
At the end of February, the threat that Russia would invade Ukraine and start a war became a reality. Since the invasion has started, it’s added another dimension of volatility and uncertainty to supply chains and energy production.
As of 2020, 7% of U.S. petroleum imports came from Russia according to EIA data. President Biden recently signed an Executive Order to ban imported oil, gas, and coal from Russia. The EIA also notes that Europe gets most of its oil and natural gas from Russia.
There are concerns that the ongoing war will continue to hike gas prices up and disrupt supply. According to the International Energy Agency (IEA) as of March 1, 2022, “IEA member countries agreed to release 60 million barrels of oil from their emergency reserves to send a unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia’s invasion of Ukraine.”
President Biden has committed to releasing 30 million barrels of oil from reserves as well, according to the U.S. Department of Energy. This is the second time reserves have been tapped, totalling 60 million barrels. While it may sound like a lot, the U.S. consumed about 20 million barrels a day last year. So while there are measures being put in place to get more oil out of reserves, it may still fall short and lead to higher gas prices.
Currently, we’re seeing high rates of inflation — currently at 7.5% — but that may increase with turmoil due to the Russian-Ukrainian war. One CNN analysis projects that we could see 10% inflation.
The bottom line
If you’ve been to the pump recently and wondered why is gas so expensive right now, it comes down to supply and demand, and now added volatility and supply disruption due to the war. The good news is there is a decrease projected later in the year but you may have to wait until December to see it. While these factors are largely outside of your control, if possible, you can cut costs by driving less. Of course, that’s not an option for everyone, but if you can, you can drive less, opt for public transportation, biking, and walking. If you do drive less, you stand to save with your car insurance as well with pay-per-mile coverage. Using pay-per-mile insurance, you pay for the miles you drive, along with an affordable base rate, to keep costs low. Find out your rate today with Metromile.
Melanie Lockert is a freelance writer, podcast host of the Mental Health and Wealth show, and author of Dear Debt. She’s a cat mom to two jazzy cats, Miles and Thelonious, an amateur boxer, music lover, and needs coffee to function.