Political Unrest Pushing Gas Prices Upward

With the threat of a Russian invasion of the Ukraine hanging over the global oil markets, the national average price for a gallon of gas rose last week to $3.48 or four cents more than a week ago, AAA reported this week. 

Pumping Gas
The average gas price in the U.S. is $3.48 a gallon, up more 4 cents a gallon compared with last week.

Gas Buddy notes the price at the fuel pump has climbed for seven consecutive weeks is now up more than $1 per gallon than it was a year ago. 

“The jump in gasoline prices has continued unabated as oil prices continue to push higher, reaching $94 per barrel last week on continued concern over the possible imminent threat that Russia may invade Ukraine,” said Patrick De Haan, head of petroleum analysis at GasBuddy, in his blog. “Not only are oil prices up, but the bulk of the nation is starting the multi-month transition to summer gasoline, further adding to the rise at the pump.”

According to AAA, the primary driver of the current increase in prices remains the high cost of crude oil. Moderating winter weather and optimism over a potential fading of the omicron variant have led to an increase in gas demand, AAA noted. 

“More drivers fueling up here coupled with a persistent tight supply of oil worldwide provides the recipe for higher prices at the pump,” said Andrew Gross, AAA spokesperson. “And unfortunately for consumers, it does not appear that this trend will change anytime soon.” 

More drivers means more demand

Michael Sivak, managing director of Sivak Applied Research, noted miles traveled increased 2% in November 2021 compared with the miles traveled in before the pandemic in November 2019. The price of gasoline went up 32% in January 2022 over the price in January 2019, according to Sivak. 

New data from the Energy Information Administration shows total domestic gasoline stocks dropped last week, putting more pressure on supply, while demand for gasoline rose from 8.23 million barrels per day to 9.13 million. 

A decrease in total stocks and increased demand have contributed to upward pressure on pump prices, but rising crude prices continue to play the dominant role in pushing pump prices higher. Gas prices will likely increase as demand grows and crude oil prices remain above $90 per barrel. 

Supplies of crude oil getting tighter 

At the end of last week, the price of crude oil also was increasing formal trading session, West Texas intermediate increased by $3.22 to settle at $93.10.  

The tension between Russia and Ukraine continues to contribute to rising oil prices. Russia is a member of OPEC+, and any sanctions based on their actions toward Ukraine may cause it to withhold crude oil from the global market. 

Oil prices could soar to $120 a barrel if Russia’s crude exports are derailed by tensions with Ukraine, according to projections from J.P. Morgan. Russia holds a 12% share of the market among global oil producers, the company noted.

The forecast by J.P. Morgan underscores how a potential invasion of Ukraine would have ripple effects that would be felt by inflation-shy consumers around the world. “Any disruptions to oil flows from Russia in a context of low spare capacity in other regions could easily send oil prices to $120 (a barrel),” Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, observed in a recent report. She noted that a complete change in Russia’s stance toward Ukraine wouldn’t bring about massive relief either, predicting prices would drop to just $84 per barrel.

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