HOUSTON — Gasoline prices hit an ominous milestone on Saturday, as the national average for regular gasoline hit $5 a gallon.
Summer gasoline is almost always more expensive as fuel demand takes off around Memorial Day weekend. But this year, oil and refined fuel prices have risen to their highest levels in 14 years, largely due to the Russian invasion of Ukraine and subsequent sanctions, and a rebound in energy consumption as the economy recovers from the coronavirus pandemic.
The national average gasoline price on Saturday was $5, up 60 cents from a month ago. A year ago, gasoline was selling for $3.08, according to the AAA automobile club. The national average is at its highest level since March, when it surpassed its previous high set in July 2008, when oil traded above $133 a barrel. That was over $10 above the current level without even accounting for inflation. At the time, the national average gasoline price was $4.11, or about $5.37 per gallon in today’s dollars.
The average price is over $4 per gallon in all states. In California, long one of the most expensive states in the country for fuel, the price is over $6 a gallon. The states with the largest recent increases in gasoline prices are Michigan, Delaware, Maryland and Colorado.
Energy experts estimate that every penny of gas price increase costs Americans an additional $4 million a day.
“Strap on for a scorching summer ride,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “The average consumer is going to pay $450 a month for their fuel needs and that compares to just over $100 in 2020 during the pandemic.”
The war in Ukraine had the most direct impact on gas prices, as sanctions against Russia removed more than a million barrels of oil from world markets. Energy traders also pushed up oil prices in anticipation of a further drop in Russian production and exports.
But many other factors have contributed to the price increase.
There is not enough capacity to refine oil into gasoline, diesel and jet fuel. Oil companies have closed a handful of refineries in recent years, particularly during the pandemic when demand plummeted. A few new refineries will open or expand over the next year, which may help.
But for now, analysts say strong demand for gasoline is weighing on limited supplies and driving up prices as drivers hit the road after several waves of new COVID-19 variants kept them close to home. them. The easing of strict pandemic containment measures in China also pushed up oil prices.
High gas prices — along with rising costs for other necessities like food and housing — are a big deal for President Joe Biden. Many political pundits believe Democrats could suffer losses in the November election because voters are angry and frustrated with high inflation. A report on Friday showed consumer prices reaccelerated in May, rising 8.6% from a year earlier, the fastest pace in more than 40 years.
Last week, as gas prices approached the $5 threshold, Biden administration officials said the president would visit Saudi Arabia, one of the world’s largest oil producers, in the apparent goal of restoring diplomatic relations and, above all, asking for help with lowering energy prices. It also encourages domestic producers to pump more oil, although the big oil companies are reluctant to dramatically increase their investments, preferring to return profits to investors through dividends and share buybacks.
In the past, when oil companies produced more oil in response to high prices, they caused a glut, reducing their profits.
Biden has little sway over gas prices, which are governed by global supply and demand. Experts say even Saudi Arabia is unable to bring prices down quickly because it does not have the capacity to fully offset the expected drop in Russian production. Last month, the European Union agreed to ban most Russian oil by the end of the year.
In March, when Biden announced that the United States was banning Russian oil and natural gas, he warned Americans that “defending freedom is going to be expensive.” It looks like high prices are starting to have an impact on demand. Travel experts say some people choose to travel shorter distances while on vacation.
Going forward, high prices at the pump are likely to incentivize motorists to switch to electric cars, but the purchase of such cars is expected to reduce demand over the next few years, not months.
“It takes a while for price increases to affect demand,” said Donald Hertzmark, president of DMP Resources, a Washington-based energy consultancy. “Consumers must believe that price increases are real and permanent, and there must be a period of adjustment to substitution, retention, and demand destruction.”
This article originally appeared in The New York Times.