Why are gas prices reaching records in the US and why will they stay that way for a long time?

Gas prices continue to rise in the US 1:08 (CNN Business) –– The Russian invasion of Ukraine is one of the main reasons why drivers in the United States are now paying a record price for gasoline. But it’s not the only motive. Numerous factors have pushed costs up, to the point that regular gasoline hit a record $4.87 a gallon on Monday according to the AAA survey. This figure represents an increase of 25 cents per gallon in the last week alone. Gasoline prices were already expected to break the $4-a-gallon mark for the first time since 2008, with or without shots fired in Eastern Europe or economic sanctions imposed against Russia. But now the national average is expected to reach $5 a gallon in the next two weeks, warned Tom Kloza, global head of energy analysis at OPIS, which tracks gasoline prices for AAA. “I think we’ll hit $5 sometime between this weekend and Juneteenth or Father’s Day weekend,” he said. A Steady Rise in Gas Prices In March, prices topped the record $4.11 a gallon for the first time, which had stood since 2008. That number now appears to be stuck in the good old days: the average National has increased steadily over the last month, setting 27 records in the last 28 days. More than one in five gas stations across the country now charges more than $5 per regular gallon, with just over half charging $4.75. Gasoline prices shoot up again in the US. 1:16 There are 10 states, plus the city of Washington, where the average price is already US$5 or more: Alaska, Arizona, California, Hawaii, Indiana, Michigan , Illinois, Nevada, Oregon and Washington. Several more are just a penny shy of $5, so prices in those places are likely a day or two away at most from crossing the mark. That’s because there are several reasons, aside from the disruption of Russian oil exports, for prices to be on the rise, according to Kloza. And making predictions about how prices will behave has proven difficult. As classes end and summer travel resumes, so will the demand and price of gasoline, he noted. “Anything goes from June 20 through Labor Day,” Kloza said. “We could certainly see the national average get closer to $6.” These are the reasons behind the record price increase: Russia’s invasion of Ukraine Russia is one of the largest oil exporters on the planet. In December, it shipped nearly 8 million barrels of oil and other derivatives to world markets. Five million of that total were crude oil. But, very little of that made it to the United States. Europe got 60% of the oil and 20% went to China, in 2021. But, the price of oil is traded on world commodity markets, so the loss of Russian oil affects oil prices around the world. world, no matter where it is used. Concerns about the impact on global markets led Western nations to initially exempt Russian oil and natural gas from sanctions they imposed to protest the invasion. What effects would the release of US oil have? 7:22 But in March, the United States announced a formal ban on all energy imports from Russia. And last week, the European Union announced a ban on Russian oil imports by ship. That represents about two-thirds of the oil that European nations imported from Russia. Russian oil is slowly and steadily being withdrawn from global markets. China lockdowns end One factor that has kept oil prices in check has been the rise in Covid-19 cases and strict lockdown rules in much of the country. That was a big drag on oil demand. But, as the rise of covid-19 has started to recede, lockdowns are being lifted in major cities like Shanghai. And more demand without more supply can only drive prices higher. Less oil and gasoline from other sources hit the price Oil prices tumbled as pandemic-related stay-at-home orders around the world sank oil demand in the spring of 2020. It even briefly traded negative. In response, OPEC and its allies, including Russia, have agreed to cut output as a way to support prices. Even as demand returned earlier than expected, they kept production targets low. American oil companies don’t follow those kinds of nationally mandated production targets. But they have been reluctant or unable to resume oil production at pre-pandemic levels, amid concerns about the prospect of tougher environmental rules that could reduce future demand. Many of those stricter rules have been relaxed or not signed into law. “The Biden administration is suddenly interested in more drilling, not less,” said Robert McNally, president of the consulting firm Rapidan Energy Group. “People are more worried about high oil prices than anything else,” he explained. It takes time to increase production. Especially when oil companies face the same supply chain and hiring challenges as thousands of other American companies. “They can’t find people or equipment,” McNally added. “It’s not that they’re available at a higher price. They’re just not available.” Overall, oil stocks have underperformed the broader market for the past two years, at least until the recent price surge. Oil company executives wanted to redirect cash into share buybacks and other ways to help their share price rather than increase production. “Oil and gas companies don’t want to drill any more,” said Pavel Molchanov, an analyst at Raymond James. “They are under pressure from the financial community to pay more dividends, to do more share buybacks instead of the proverbial ‘drill, drill,’ which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed. “, complete. One of the starkest examples: ExxonMobil last month reported first-quarter profit of $8.8 billion, more than triple the level of a year ago, when special items are excluded. It also announced a $30bn share buyback plan, far more than the $21bn to $24bn it expects to spend on all capital investments, including finding new oil. Not only is oil production lagging behind pre-pandemic levels, there is also less refining capacity in the US Today, about 1 million fewer barrels of oil per day are available to be broken down into gasoline, diesel , jet fuel and other petroleum products. State and federal environmental regulations are prompting some refiners to switch from oil to renewable, lower-carbon fuels. And some companies are shutting down older refineries, rather than spend the money it would cost to keep them running. Especially, with massive new refineries opening overseas in Asia, the Middle East and Africa in 2023. Furthermore, the fact that diesel and jet fuel prices have risen much more than gasoline prices reveals that refineries are shifting more of their work to those products. “The economy demands that more jet fuel and diesel be produced at the expense of gasoline,” Kloza said. And with prices in Europe even higher than in the United States, Canadian and American oil producers have increased oil and gasoline exports to the continent. That also limits supply in the US Strong demand for gasoline But supply is only part of the equation in price increases. Demand is the other key. And while it’s very strong right now, it’s not yet back to pre-pandemic levels. The US economy posted record job growth in 2021. And while those gains have slowed, they remain historically strong. Demand is getting another boost as many employees who have worked from home for much of the past two years return to the office. The start of the summer travel season on Memorial Day weekend likely triggered the typical annual increases in demand for gasoline and jet fuel. All US airlines report strong bookings for summer travel, even with airfares exceeding pre-pandemic levels. The end of the wave of the omicron variant and the removal of many restrictions due to covid-19 encourage people to leave the house for more shopping, entertainment and travel. “Rain or shine or gas prices go up, people are going to take vacations,” Kloza said. Commutes to work may remain slightly low. Many of those who plan to return to the office will only be there three or four days a week. Additionally, the total number of jobs is still a bit below 2019 levels. But there will be periods, most likely this summer, with higher demand for gasoline than during comparable periods before the pandemic, Kloza predicts. “Even before Ukraine, I expected to break the record,” Kloza said. “Now it’s a question of how much we beat that record.”