Fuel prices are displayed at gas stations on March 03, 2022 in Chicago, Illinois. Rising demand and shrinking supply, coupled with global supply uncertainty caused by the war in Ukraine, has pushed gas prices above $4 a gallon in many parts of the country.
Scott Olson | Getty Images
Gasoline prices hit their highest level since 2008 on Sunday as crude oil supply fears stemming from Russia’s war on Ukraine increase the impact on consumers at the pump.
The national average for a gallon of gasoline reached $4,009 on Sunday, according to AAA, which is the highest since July 2008, not adjusted for inflation. Prices rose at a rapid pace. Consumers are paying 40 cents more than a week ago and 57 cents more than a month ago.
In some places, consumers pay a lot more. The California average is now $5.288 per gallon.
The price spike follows a spike in oil prices amid Russia’s war with Ukraine. The underlying cost of oil is more than 50% of the cost of gasoline consumers put in their cars, and US oil has been trading at the latest levels since 2008.
Russia is a major producer and exporter of oil and gas. While sanctions from Western allies have so far allowed Russia’s energy trade to continue, the market is self-sanctioning – in other words, buyers are shunning Russian goods. According to JPMorgan estimates, 66% of Russian oil is struggling to find buyers. This is creating supply fears in what was already a tight market before the Russian invasion.
Andy Lipow, president of Lipow Oil Associates, said the next stop for the national average is $4.50 a gallon as supply disruptions ripple through the energy complex.
“Oil buyers are reducing their purchases of refined products from Russia, causing Russian refineries to shut down,” he said. “Dockers are refusing to unload ships carrying oil and gas. Insurance rates are skyrocketing, forcing ship owners to cancel ship reservations in Russia, which also impacts the capacity of the Kazakhstan to sell its oil”.
Rising gasoline prices are contributing to inflationary fears throughout the economy. The Biden administration has said for months that it was working to lower prices at the pumps and in the fall tapped the Strategic Petroleum Reserve. Since prices have risen sharply, some are calling on the administration to suspend the federal gas tax.