Gas prices are through the roof in 2022. Despite seeing a small drop towards the end of 2021, they spiked again in January and have gone on an upward trajectory since. So, why is gas so expensive right now?
The stratospheric gas prices in 2022 mainly result from Russia’s invasion of Ukraine. On February 24, 2022, Russia began a military invasion of Ukraine, leading to a Russian oil ban in the US. The Keystone XL project cancellation, Covid 19, and inadequate local oil production have also played roles in the high gas prices.
This article analyzes the reasons for the ongoing gas crisis. Keep reading to find out if gas prices are likely to drop soon.
Average Gas Prices 2022
Currently, the price for a gallon of gasoline is $4.580. This is a huge surge from January when prices were close to $3.50 per gallon. It’s also slightly lower than the highest price in 2022 ($4.69) witnessed in March.
1 Price per gallon of gasoline in USD
Average Gas Prices by Year
According to the US Energy Information Administration, gas prices are the highest they’ve been in more than a decade. Even during the height of the pandemic (2019 to 2021), The price per gallon rarely rose past $3.076. The last time oil prices went beyond the $4 mark was in July 2008 during the Global Financial Crisis.
What Was the Highest Gas Price Ever?
Before 2022, the highest gas price ever recorded was $4.11 per gallon of gas, recorded in July 2008. However, that record has been broken several times this year, with the peak being $4.69 in March.
Why Are Gas Prices So High 2022?
With the figures above, one can’t help but wonder, why are gas prices so high right now? Is the economy worse than it was in 2008?
Keystone XL Pipeline Cancellation
Since supply and demand are the biggest contributors to oil prices, the cancellation of Keystone XL was a huge blow to the industry.
Keystone XL is a 1200-mile, $9 billion pipeline project. Proposed in 2008, it was set to transport oil to US refineries from Canada’s Western tar sands.
Unfortunately, the project was halted by the owner, TC Energy Corp, after US president, Joe Biden, revoked some vital permits needed for the US stretch of the project.
While the project just got canceled, it’s been at the center of controversy for a long time. Proponents believed it would increase the supply of oil in the US, hence lowering the prices, while opponents argued that it would hinder the US from shifting to cleaner energies.
The project was supposed to carry 83,000 barrels of oil every day but has been delayed for the last 12 years due to opposition from Native Americans, landowners, and environmentalists.
Russia’s Invasion of Ukraine
Russia and Ukraine have been at loggerheads since 2014. However, it has never escalated to a full invasion until recently. On February 24, 2022, Russia initiated a military invasion of Ukraine. In an effort to cripple Russia economically, the US and other NATO countries banned the importation of Russian oil.
This had a huge impact on the global oil supply because Russia has been consistently in the top 3 global oil producers.
Since then, the oil price has risen by over 50%, and retail gas has spiked by more than 25%.
Even though Dr. Fauci said the US is transitioning out of the pandemic phase of Covid 19, we’re still experiencing its effects, especially on the economy.
The pandemic disrupted global supply chains, including oil. Although the supply of oil dropped at the height of the pandemic due to supply chain issues, people were not moving around much, meaning the demand stayed equally low.
Now that almost everyone is back to work, we are yet to make up for the short supply during the pandemic. As a result, there’s a global oil shortage, which has driven the prices to stratospheric heights.
Inadequate Local Oil Production
For the past couple of decades, the US has relied on foreign oil for its operations. The top US oil suppliers are Canada, Mexico, Russia, Saudi Arabia, and Colombia.
In 2022, there’s a problem with the Canadian supply (diplomatic issues) and the Russian supply (sanctions over the Ukraine invasion.) Therefore, without enough local production, the US is facing a major oil shortage.
What State Has the Highest Price of Gas Right Now?
According to CNBC, the state of California has the highest gas prices, with a gallon costing $5.74. This is almost a dollar over Nevada, which has the second-highest gas prices at $4.96 per gallon.
On the other hand, the state with the least expensive gas is Kansas, at $3.82 per gallon. While this is higher than the national average for the past decade, it’s still $1.92 less than California.
The average driver covers 39 miles every day, and their vehicle consumes a gallon for every 24.2 miles. As a result, they would spend $9.26 on gas in California and $6.50 in Kansas. This is roughly a $100 difference every month.
How High Will Gas Prices Go In 2022?
Prices of gasoline, a crude oil derivative, were already high at the beginning of 2022 due to supply chain issues. However, Russia’s invasion of Ukraine and Biden’s cancellation of the Keystone XL project have worsened it.
On March 8, President Biden announced a ban on Russian oil imports. No one is sure how long the ban will last and if Russia will call off its invasion.
However, the president encouraged local companies to ramp up production, but it’s still unclear how much time it will take for local output to rise.
Read Also: Why are Electric Car Batteries So Expensive?
Future Gas Prices Predictions
From the information above, the US Energy Information Administration has raised its spot average forecast by more than $22 per barrel. They expect the price per barrel to average around $102 a barrel in the second half of 2022.
This is a decline from the peak March price of $117 per barrel in March.