Gas price spike: Who鈥檚 to blame and how can we fix it?
Americans are听听closely: $4.48 in Georgia. $5.05 in Ohio. $6.44 in California. Week by week, the numbers at gas station pumps have been听rising.听
Residents of other countries are used to听, generally over $10 a gallon in Hong Kong and around $7 to $9 in most of Europe. But the United States has long counted on comparatively cheap gas to fuel a car-centric economy.
Average U.S. gas prices hit听an unprecedented $5.01 on June 15,听an upward trend that is听contributing to a 40-year high in inflation.听To slow inflationary pressure, the Federal Reserve hiked short-term interest rates by 0.75 percentage points on Wednesday in the biggest jump in 28 years.听
Why We Wrote This
A story focused onSurging gas prices weigh on consumers around the globe. A lot of blame is going around. But the issue is also raising questions of responsibility in a different sense: how to take better charge of our energy future.
As anxieties mount, fingers are pointing. Turn to social media, and it seems one of two culprits is to blame for current gas prices: price-gouging corporations, or U.S. President Joe Biden. The Biden administration, meanwhile, has dubbed the situation 鈥淧utin鈥檚 price hike.鈥澨�
The real story is nuanced. For starters, this is not a purely American problem:听, the听, and other countries are facing record-high prices too.听Economists are quick to note that the oil market is a听global one, affected by shocks to supply and demand, like the world鈥檚 emergence from the pandemic and, yes, Russia鈥檚 invasion of Ukraine.听
The high prices are a pressing reminder of humanity鈥檚 need to shift away from fossil fuels due to climate change. While no one is shaming consumers, both buyers and sellers are responsible for market movements 鈥� and demand for fuel has rebounded because of consumers鈥� choices as well as their necessities.
What has driven prices up?
As is often the case, it鈥檚 a combination of things.听
Gas prices usually follow the price of crude oil, which generally accounts for about half of the pump price but has grown to听听in recent months.听When the pandemic began, travel and industry slowed, dramatically lowering demand for crude oil. Oil companies responded by lowering production and laying off workers, in some cases听听down refineries. As society opened up again, pent-up demand surged听while global production has lagged.听
U.S. Energy Information Administration
Several factors explain the production gap. Rising input costs and supply-chain bottlenecks for equipment like casing and coiled tubing have made it听听to increase supply quickly. Longer-term, oil and gas companies are hesitant to invest in oil infrastructure, given听international ambition听to phase out fossil fuels, including President Biden鈥檚 decision to cancel the Keystone XL pipeline.听听
Then Russia invaded Ukraine on Feb. 24. Prices were already rising before the invasion, but accelerated when the European Union and the U.S. moved to cut Russian oil from their energy supply.听
鈥淲estern reluctance to buy Russian oil is working,鈥� says Chris Knittel, professor of applied economics at the Massachusetts Institute of Technology. 鈥淭hat means Russia is able to sell less oil [and] world prices are going to have some upward pressure.鈥澨�
In 2021, only 8% of U.S. petroleum-product imports came from Russia, but less Russian oil on the market makes crude oil more expensive for everyone.听
What鈥檚 being done?
President Biden responded to calls to increase U.S. oil supply by releasing 1听听barrels per day from the Strategic Petroleum Reserve. But the move has made little听听on prices, which Dr. Knittel says isn鈥檛 surprising, given daily global consumption of around 100 million barrels.听And even if Mr. Biden were to expand drilling on federal lands 鈥� a move some have called for 鈥� any resulting supplies wouldn鈥檛 show up quickly.听听
On Tuesday, Mr. Biden听听that the EPA will allow the sale of a blended biofuel known as E15, long resisted by some environmental groups, over the summer for short-term relief. He is also considering听听with the oil-producing nations of Saudi Arabia, Iran, and Venezuela to increase supply, though those effects wouldn鈥檛 be felt soon and could raise ethical concerns.听
Meanwhile, a handful of states temporarily , which account for anywhere from听 of the pump price, with more considering similar proposals.听
Addressing what some see as a greed-induced crisis on the part of oil and gas companies, which saw profits in the first quarter of 2022, Mr. Biden sent a letter to major firms this week saying that excessive margins are 鈥渨orsening that pain鈥� for consumers.听
Already, Democratic lawmakers had pulled together a . The legislation passed the House in May along partisan lines but faces a tough battle in the Senate. For opponents, high profits are a reasonable result of , and do not necessarily imply price-gouging.听
What鈥檚 next?
The challenge lies in weighing both future and present needs.
鈥淭hese companies are investing in a low-carbon future that in the short-term still requires the production of fossil fuels for consumers who need it today,鈥� says Devin Gladden, AAA National鈥檚 manager for federal affairs.听
The U.S. Energy Information Administration a drop in gasoline prices by 2023, but that will depend on how sanctions continue to affect Russian oil production, the amount the Organization of the Petroleum Exporting Countries decides to produce, and to some extent the rate of drilling expansion in the U.S.听
In the meantime, Mr. Gladden says the current scenario is opening consumers鈥� eyes to the reality and necessity of the energy transition: 鈥淚f it鈥檚 in the budget to make that switch to an electric vehicle, they鈥檒l do it.鈥澨�
Those who can鈥檛 afford a higher-efficiency car, or can鈥檛 buy an electric vehicle due to supply-chain , are more likely to bike, carpool, combine or reduce trips, and use public transportation where available.听听
For Dr. Knittel, now is a chance to reassess our collective dependency on oil. To phase out fossil fuels without hurting consumers, demand will need to fall in tune with decreased production.听
鈥淲e can鈥檛 affect the price, but we could affect how much we need to buy, and that鈥檚 what I hope policymakers are focusing on these days.鈥�
