Why Are Gasoline Prices So High? How Russia’s Invasion Of Ukraine Affects The Pump

Topline

U.S. gasoline prices reached record highs this week, with some portions of the country paying on average nearly $5 per gallon, according to the American Automobile Association—here’s what has led to the high price at the pump and when to expect prices to drop.

Gas prices over $6.00 and $7.00 a gallon are posted at a gas station in Los Angeles, California on … [+] March 7, 2022. (Photo by ROBYN BECK/AFP via Getty Images)

AFP via Getty Images

Key Facts

The national average for a gallon of gas reached a record $4.252 on Wednesday, according to AAA, or a 20% increase from a month prior.

In California, the average price per gallon reached $5.573, and prices in states like Washington, Oregon and Hawaii neared the $5 threshold, while Kansas had the lowest average price of $3.792.

Wednesday’s record prices came a day after President Joe Biden banned Russian oil imports, which accounts for roughly 8% of total U.S. oil imports — meaning the U.S. has less readily available oil for drivers and other forms of transportation, like moving goods around the country.

Gas prices in the U.S. are affected by the price of oil: West Texas Intermediate, a U.S. oil benchmark, and Brent crude, a global oil benchmark, spiked near $130 per barrel following Biden’s announcement, though both benchmarks fell to around $110 per barrel on Wednesday.

Energy analysts told the Associated Press costs could go as high as $160 per barrel, which could send the average price per gallon of U.S. gasoline over $5.

In an effort to lower prices at the pump, the Biden administration said it will release millions of barrels of oil from the U.S. Strategic Petroleum Reserve to try to ease prices, though some experts say the move could have little effect on the price of gasoline.

Aside from Russia, the U.S. relies on Canada, Mexico and Saudi Arabia for crude oil imports, according to the U.S. Energy Information Association, though the U.S. has held talks with countries like Venezuela to find additional sources of oil exports.

Crucial Quote

Patrick De Haan, head of petroleum analysis at GasBuddy, said on Monday “there are few words to describe the unprecedented rise in gasoline prices.” “Forget the $4 per gallon mark, the nation will soon set new all-time record highs and we could push closer to a national average of $4.50/gal,” De Haan said in a statement. “Americans will be feeling the pain of the rise in prices for quite some time, with little good news foreseen.”

Key Background

Crude oil prices have been rising for several months as petroleum refiners worked to meet increased demand after lowering output due to the Covid-19 pandemic. Crude oil was selling for about $90 per barrel last month, and prices have spiked as high as $130 per barrel this week—the highest since July 2008. Sanctions against Russia, which is one of the largest producers of oil in the world, for its invasion into Ukraine has impacted its ability to sell crude oil, which is one of the largest determiners for gas prices, De Haan told USA Today. While the U.S. announced a ban on Russian oil imports, Europe has not, likely because Russia provides about 25% of Europe’s oil and about 40% of Europe’s natural gas for heat, electricity and industry use.

What To Watch For

Gas prices aren’t going to improve soon, according to De Haan. “The high prices are likely to stick around for not days or weeks, like they did in 2008, but months,” De Haan said in a statement. GasBuddy’s 2022 gasoline forecast predicted the average cost of a gallon of gas would peak in May at $4.25—the current national average. The average is expected to remain over $4 until November, according to GasBuddy’s forecast.

Surprising Fact

Though barring Russian oil will likely lead to higher prices at the pump, a Quinnipiac poll released Monday found 71% of Americans support a ban on Russian oil, even if it means higher gasoline prices.

Big Number

12%. That’s about how much oil benchmarks West Texas International and Brent crude fell at market close on Wednesday amid indications of possible progress from the U.S. on finding and encouraging additional sources of oil. “The world is working together to tackle surging oil prices and that has put a short-term top for crude,” Ed Moya, senior market analyst at Oanda, said in a statement to CNBC.