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- Gas prices in the United States are at a seven-year high.
- Demand increased as the economy reopened and Americans began to drive more.
- Meanwhile, supply has been limited due to hurricanes and OPEC decisions.
Americans are feeling the pain once again at the gas pump, and it’s because of a classic clash between growing demand and limited supply.
An AAA report found that US gas prices averaged $ 3.22 on Wednesday, more than they have ever been since 2014. This matches US Energy data. Information Administration, which found that gas prices were rising throughout 2021, reaching levels not seen since the middle of the last decade:
The reasons for the spike in prices are the supply and demand for textbooks from an economics textbook: Americans have started driving more this summer as the pandemic has moderated, and a combination of interruptions in the he domestic supply and problems in overseas energy markets have made crude oil more expensive.
Demand grows as Americans hit the road
As with so many other aspects of daily life, the COVID-19 pandemic has radically changed the way Americans travel. The lockdowns and the early uncontrolled spread of the virus resulted in the cancellation of trips and a sharp reduction in commuting.
By the summer of 2021, however, Americans were back on the road. Vehicle kilometers traveled as measured by the Federal Highway Administration fell in the spring of 2020, but by July 2021, the most recent month for which data is available, road traffic had returned to what would normally be seen in the middle. of summer:
This increase in the amount of driving Americans do also means an increase in the demand for fuel for cars.
Hurricane Ida slowed the production and refining of oil in the United States
In addition to this surge in demand, there were also major supply constraints.
The Energy Information Administration noted in mid-September that Hurricane Ida shut down much of the United States’ oil drilling and refining capacity in the Gulf of Mexico in late August.
While platforms and refineries have quickly returned online since then, crude oil inventories remain low, suggesting a continued lack of supply. EIA wrote that at the end of September, oil stored at Cushing, Oklahoma, one of the major crude deposits in the United States, was down 40% from the start of the year.
Other EIA data shows crude oil inventories across the country remain low:
A tightening of domestic oil supplies and stocks, together with an increase in demand, pushes up gas prices.
Energy markets around the world are in crisis
In addition to the slowdown in domestic oil supply, overseas oil and energy markets are also not helping matters on the supply front.
OPEC and other major oil-exporting countries agreed to only a modest increase in production on Monday, despite oil consumers like the United States and India pushing for increased exports, according to CNBC . This lack of relief over the oil supply has pushed up crude prices.
It also shows how the oil-exporting cartel still holds enormous power in global oil markets, even as the United States has dramatically increased production over the past decade and countries around the world begin the process. transition to greener energy sources.
Wider energy markets have also faced supply shortages. European prices for natural gas and electricity have skyrocketed in recent weeks, and traders expect oil and other energy prices to rise in the months to come.
Combine the growing demand for the reopening of the United States with supply shortages both domestically and globally, and it’s no surprise that gas prices are rising.
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