San Antonio Express-News (Sunday)
Average gas price hits record: $5 a gallon
HOUSTON — Gasoline prices reached a grim milestone Saturday, as the national average for regular gasoline reached $5 a gallon.
Summer gasoline is nearly always more expensive because demand for fuel takes off around Memorial Day weekend. But this year oil and refined fuel prices have risen to their highest levels in 14 years, due largely to the Russian invasion of Ukraine and resulting sanctions, and a rebound in energy use as the economy recovers from the coronavirus pandemic.
The national average price of gasoline Saturday was $5, up 60 cents from a month ago. Gasoline prices have been surging since April 2020, when the initial shock of the pandemic drove prices under $1.80 a gallon, according to government figures.
A year ago, gas sold for $3.08, according to the AAA motor club. The national average has been at its highest point since March, when it went above its previous record set in July 2008, when oil was trading at more than $133 a barrel. That was more than $10 above the current level without even accounting for inflation. Back then, the national average gasoline price was $4.11, or about $5.37 a gallon in today’s dollars.
The average price is above $4 a gallon in all states. In California, long one of the most expensive states in the country for fuel, the price exceeds $6 a gallon. States with the largest recent increases in gasoline prices include Michigan, Delaware, Maryland and Colorado.
Fewer refineries
Energy experts estimate that every penny increase in the price of gasoline costs Americans an extra $4 million a day.
“Strap on for a sizzling summer ride,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “The average consumer is going to pay $450 a month for their fuel needs and that compares to something barely over $100 in 2020 during the pandemic.”
The war in Ukraine has had the most direct impact on gas prices, as sanctions on Russia have pulled more than 1 million barrels of oil off global markets. Energy traders have also bid up oil prices in anticipation that Russian production and exports will fall further.
But many other factors have contributed to the rise in prices.
There isn’t enough capacity to refine oil into gasoline, diesel and jet fuel. The United States is the world’s largest oil producer, but U.S. capacity to turn oil into gasoline is down 900,000 barrels of oil per day since the end of 2019, according to the Energy Department.
Oil companies closed a handful of refineries in recent years, especially during the pandemic when demand plummeted. A
few new refineries will open or expand over the next year, which could help.
But for now, analysts say that strong demand for gasoline is straining limited supplies and pushing prices higher as drivers hit the road after several waves of new COVID-19 variants kept them close to home. The easing of stringent pandemic lockdowns in China has also pushed up oil prices.
The high gas prices — along with the rising costs for other necessities like food and shelter — are a big problem for President Joe Biden. Many political experts believe the Democrats could suffer losses in the November elections because voters are angry and frustrated about high inflation. A report Friday showed that consumer prices reaccelerated in May, rising 8.6 percent from a year earlier, the fastest pace in more than 40 years.
Last week, as gas prices edged closer to the $5 threshold, Biden administration officials said that the president would travel to Saudi Arabia, one of the world’s largest oil producers, in an apparent bid to restore diplomatic relations and, crucially, to seek help with bringing down energy prices. He is also encouraging domestic producers to pump more oil, although big oil companies are reluctant to increase investments significantly, preferring to return profits to investors through dividends and share buybacks.
In the past, when oil companies produced more oil in response to high prices, they caused a glut, undercutting their profits.
Republicans have called on Biden to help increase domestic oil production — for example, by allowing drilling on more federal lands and offshore, or reversing his decision to revoke a permit for a pipeline that could carry Canadian oil to Gulf Coast refineries.
However, many Democrats and environmentalists would howl if Biden took those steps, which they say would undercut efforts to limit climate change. Even if Biden ignored a big faction of his
own party, it would be months or years before those measures could lead to more gasoline at U.S. service stations.
Biden has little influence on gas prices, which are governed by global supply and demand. Experts say even Saudi Arabia is not in a position to quickly bring down prices because it does not have the ability to completely offset the expected decline in Russian production. The European Union last month agreed to ban most Russian oil by the end of the year.
Impact on demand
In March, when Biden announced that the United States was banning Russian oil and natural gas, he warned Americans that “defending freedom is going to cost.” There is some evidence that the high prices are beginning to have an impact on demand. Travel experts say that some people are choosing to drive shorter distances on their vacations.
Higher energy prices hit lower-income families the hardest. Workers in retail and the fast-food industry can’t work from home — they must commute by car or public transportation.
The National Energy Assistance Directors Association estimates that the 20 percent of families with the lowest income could be spending 38 percent of their income on energy including gasoline this year, up from 27 percent in 2020.
Eventually the high prices at the pump are likely to encourage motorists to switch to electric cars, but the purchases of such cars are expected to reduce demand over the coming years, not months.
“It takes a while for price increases to affect demand,” said Donald Hertzmark, president of DMP Resources, a Washington-based energy consulting firm. “Consumers have to believe the price increases are real and permanent, and there has to be some period of adjustment to substitution, conservation and demand destruction.”