Inflation in the United States was already high and now the situation has been worsened by Russia’s invasion of Ukraine. The conflict has caused turmoil in the stock markets in recent days, leading to oil prices soaring in the U.S. and Europe. Experts are warning that oil prices are expected to get even higher, and this could have a ripple effect in many sectors. Just a year ago in 2021, the national average gas price in the U.S. was $2.65 a gallon. As of last Saturday (2/26/2022), it was $3.597, according to AAA. Analysts are predicting this could rise even further to $4 in the coming weeks, reaching $5 in markets where gas prices are going up, but, for how long?
- Why Are Gas Prices Getting High?
- Other Reasons for Gas Prices Going Up
- Does the US Import Oil from Russia?
- When Will Gas Prices Go Down?
Several factors are linked to the price cap, including the wholesale cost of energy. In 2021, energy prices rose due to one of the coldest winters in Europe, which drove up demand, leading to stored gas supplies getting depleted.
China also experienced a demand for gas and the Russian pipeline gas supplies was lower than expected. The Oxford Institute for Energy Studies explains that “On the global LNG (Liquified Natural Gas) market, the supply-side increase in nameplate export capacity was offset by outages at a number of export plants. By contrast, LNG demand outside Europe surged. This meant that supply growth did not keep pace with the increase in demand.”
They added, “On the European market, the decline in LNG imports was accompanied by a decline in European production and pipeline imports from regional suppliers, most notably Russia.”
Recently, the biggest contributing factor to the increase in gas prices is the conflict between Russia and the West. Here’s a look at the lowest prices per US Gallon for this week as reported by Gasoline Prices, a website that records gas prices in Europe:
- Russia: $2.40
- Ukraine: $4.20
- Belarus: $3.10
- Poland: $4.70
- Belarus: $3.10
- Moldova: $5
- Bulgaria: $5.10
The highest prices recorded include:
- Greece: $8
- Italy: $8
- Denmark: $8.20
- Iceland: $8.30
- Norway: $8.60
- Netherlands: $8.80
Oil, coal, and Benchmark Dutch futures are the biggest gains in the energy sector, rising to 62 percent, a number not seen since 2005, according to Bloomberg.
In the U.S., inflation rose faster than it ever has in 40 years, and oil prices seem to have the upper hand compared to prices of other commodities. Statistics show that gas and jet-fuel prices have reached their highest point since 2014.
According to Joe Brusuelas, chief economist at accounting and consulting firm RSM, the Russian-Ukraine conflict could push inflation to 10 percent year over year, driven in part by gas. By his predictions, the increase in the oil price to $110 could cause consumer prices to increase by 2.8 percent over the course of a year.
If oil hits the $120 per barrel, the inflation will likely rise to nine percent in the coming months, according to calculations by Alan Detmeister, an economist at UBS.
The Democrats’ long-term investment in zero-carbon energy and short-term investments into fossil have supported the inflation-strained economy.
The uncertainty over whether Joe Biden can strike a nuclear deal with Iran has also contributed to the gas prices going up. But, it’s the fighting in Ukraine that will determine how much the gas price will increase in the coming months.
Russia is one of the biggest oil and gas producers in the world, behind the U.S., and any disruptions will have a major impact on prices. For context, the price of oil started in the $70s and $80s in 2020. It has already jumped above the $100 a barrel mark, and it's only expected to go higher.
Biden has said he’s working to blunt any increase in gas price caused by the invasion. “My administration is using every tool at our disposal to protect American businesses and consumers from rising prices at the pump,” he said.
According to the U.S. Energy Information Administration, as of 2020, Russia exported about seven percent of gross petroleum imports to the U.S, three percent of this is oil. Other countries from which the U.S. imports oil include Canada and OPEC, which comprises several countries, including Venezuela and Saudi Arabia.
According to investment bank Goldman Sachs, oil prices will approach $125 per barrel, and this could push prices at the pump to $4.50 a gallon. Experts project that gas prices will go as high as $4 during the second quarter of this year before dropping to around $3.30 in the second half of the year.
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