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Why Are Gas Prices So High?

·3 min read

Following the start of the summer travel season this past Memorial Day holiday, gas prices are on the minds of most Americans, as the rising prices have been busy squeezing wallets at an alarming rate.

AAA reports prices across the United States now average a record $4.62 led by California’s eye-popping $6.17 per gallon due to its larger state gas tax and government mandated, greener but more costly fuel blend. More painful, at a handful of those service stations gas prices are topping the national minimum wage of $7.25 per hour!

So what’s to blame with the seemingly out-of-control jump in gas prices? As we’ll explore, it’s a perfect storm of factors, but not a situation without reasons to remain positive.

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Covid’s Still Lingering Finger on Gas Prices

Remember those viral videos of wildlife reclaiming outdoor spaces as people globally hunkered down indoors at the onset of the coronavirus pandemic? Dolphins swimming in Venice, monkeys window shopping at H&M or Macy’s and that sort of thing? The wheels of commerce had stopped, and Mother Nature made a comeback. It turns out most of that was fake.

But during that same period the very real consequences of global oil suppliers drastically cutting production based on fearful visions of longer-lasting reduced demand and panicky negative crude futures contracts further weighing on those supply decisions have continued to impact the price of gas at the pump.

By 2021, with global economies back at work much faster than expected, the supply/demand dislocation in energy prices was turned upside down on its head. As a result, gas prices which nationally crashed to less than $2 in the spring of 2020 were quickly put in the rearview mirror and racing higher as more dollars chased tighter supplies with less chance to be replenished.

Gasoline Prices and Other Bad Actors

Decisions and speculations made in error aren’t the only factors responsible for soaring gas prices in 2022. The war in Ukraine resulted in western sanctions against Russian imports and put already stretched oil inventories at record lows.

At roughly 3%, the U.S. doesn’t meaningfully rely on the world’s third-largest oil producer for its gas refineries. But the global interconnectedness of the energy markets results in other countries’ demands and actions impacting gas prices.

And those politics aren’t the only driver in gas prices either. Other ongoing U.S. policies attempting to combat long-term climate change and further the use of renewable and cleaner alternative energy resources at the expense of fossil fuel production have amplified the rising gas prices individuals and businesses are struggling with today.

What to Do About Rising Gas Prices

So there’s more than a few reasons why gas prices are high. The good news? There are some things you can do.

To be fair, the Biden administration is releasing supply from the country’s strategic reserves to help counter some of the negative impact tied to this year’s Russian sanctions. But that only helps slightly (roughly 10 cents to 35 cents a gallon).

Some states are also looking at suspending gas taxes temporarily. But with the levy averaging around 10% or less and gas prices having climbed more than 50% in just the last year, the relief is also largely negligible.

All isn’t lost though. Adjusted for inflation, gas prices remain below 2008’s high. That’s good, right? And let’s be truly thankful it’s not 2020.

Also, there is the choice to manage other discretionary purchases to cope with uncontrollable prices at the pump. Starbucks (NASDAQ:SBUX), for example, is a popular fall guy for cutting back on expenses, but also hardly alone.

Lastly, with roughly 50% of car trips under three miles, walking, biking or e-biking sound like win, win strategies to help deal with rising prices at the pump.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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