CI 3: Electric Car Owners are Laughing Now
There is a pain at the pump for American drivers as US gas prices soar to record highs. As national averages for a gallon of regular gas and diesel broke records in the United States this week, many are wondering how long the surge may continue and when prices at the pump will finally drop.
There are a few factors contributing to the increase, but the main reasons are the Russian invasion of Ukraine and the rise of inflation. The sanctions put on Russia by the US and the European Union severely hindered Russia’s ability to sell crude oil, one of the biggest determiners for gas prices. Because the country is one of the biggest energy suppliers, crude oil prices have dramatically risen.
Most of Russia’s oil goes to Europe and Asia. But the key here is to think about the oil supply globally, rather than the US specifically. The commodities world is a heavily interconnected one, and oil is prices through a global market. So what happens in one area of the world can affect another.
The problem in hand is that Russia is one of the world’s biggest oil suppliers. So in that sense it doesn’t really matter who specifically is getting crunched by the loss of Russian oil, because lower supply affects those global prices no matter what. And as we know from those who took economics, when there’s less supply of an item in demand, prices rise.
Why can’t other countries pump out more?
Good old Covid strikes again! Nobody wanted oil in general in spring 2020, when global stay-at-home orders meant nobody needed to gas up and get to the office. With demand cratering, oil prices did too – even briefly trading at negative prices (yes! people were paying you to get their oil)
In turn OPEC+ (Organization of the Petroleum Exporting Countries) heavily cut production to support prices. And they’ve kept production target low since then, even when demand for oil and gasoline bounced back sooner than expected.
Guess who’s part of OPEC+? Russia. So OPEC+ isn’t rushing to rescue! The Saudis have made crystal clear for months, even before the invasion, that the group doesn’t plan to open up the oil taps anytime soon.
All of the above underscores how oil and gas prices are tied to geopolitical events, the pandemic, drilling logistics, and so much more. And it adds up to average US gas prices above $4.33 gallon as a Friday, March 11, and it can stick tp there for months.
In short, it’s all a simple case of supply and demand. But of course it’s never really that simple.