Why Are Gas Prices Skyrocketing, and What Can We Do About It?
On July 8, 2022, the price of a gallon of gas in Florida was $4.46; in New York, $4.83; and in Nevada, $5.45. In California, it was a whopping $6.15. The national average hovered at $4.72. Six months earlier, the national average was $3.28, having risen from a pandemic-driven low of $1.94 in May 2020.
For the steep rise in gas prices, Americans can thank not one factor, but a multi-layered set of geopolitical circumstances. Most experts cite inflation, post-pandemic scarcity, and the sanctions the United States and its allies imposed on Russia due to its assault on Ukraine.
However, the politicians and pundits who also call out price-gouging aren’t basing their stance on a lot of substance.
Price gouging involves a business or company unfairly raising the cost of an item that consumers desperately need during a time of crisis or natural disaster.
The price of gas typically rises or falls along with inflation rates. The Consumer Price Index, the most common measurement of inflation, rose by 8.6 percent over the one-year period ending in May 2022. This represents the largest 12-month increase in more than 40 years. Breaking this down, we saw a 34.6 percent one-year increase in energy costs and a 48.7 percent increase in gasoline costs, by May 2022.
To stimulate a post-pandemic recovery, the United States government put new infusions of cash—including several rounds of stimulus checks—into the economy. More buying power prompted an increase in spending, which in turn contributed to a rise in prices. As the value of our homes soared, so did the price we pay at the pump. Secretary of the Treasury Janet Yellen has forecast that inflation rates and high prices will be the norm for the remainder of 2022.
The sanctions against Russia, and in particular Russian oil, are the other major part of this equation. In an effort to bring home the disastrous consequences of Russia’s policy of aggression toward Ukraine, the U.S. and other allies hoped to put a lid on Russia’s export market in crude oil, the second-largest in the world.
Now we’re all feeling the fallout from this policy, as the supply of crude on global markets diminishes, making production of gasoline more expensive. Experts additionally note that petroleum producers have had to ramp operations back up from pandemic slowdowns and layoffs, and that all takes time. These higher production costs are passed on to the rest of us at the pump.
Oil companies have less to do with it than you may think.
While lawmakers have rolled out a number of measures designed to prevent or punish price gouging, the consensus among economists is that corporate gouging isn’t a major factor in the rising cost of gas.
Most large oil production companies that don’t run refining operations have next to no control over pump prices. That’s because their business model involves selling their crude oil supplies to the highest bidder in a complex global chain. That bidder could be a foreign processer or an American refinery. It might also be one of any number of international firms dealing in oil contracts.
Big oil companies have indeed seen profits soar in 2022, thanks to the simple math of limited supply and high demand, and to the fact that the price of crude oil has begun to fall. But making a profit isn’t the same as gouging. As distasteful as it is to many of us, government support for their industry means these companies aren’t necessarily doing anything illegal.
But shouldn’t they be ramping up production to drive prices down? Again, experts say it’s complex. Even if Big Oil initiated an immediate production push, the American share of the global crude oil production industry is only about 18.5 percent. It would be months or years before extra production made enough of a difference for us to see results at the pump.
Although gasoline prices typically vary with the cost of crude, there’s a lag between cause and effect. So there remains a notable asymmetry right now between crude oil costs and pump prices.
Gas station owners typically pin their pricing on anticipated costs of the production, refining, marketing, and distribution of crude oil, along with associated taxes and fees. Right now, they’re uncertain which way crude oil prices will be going. While individual franchises’ pricing practices might bear scrutiny, there doesn’t seem to be evidence of widespread gouging. Gas station profits have actually floundered, even as station owners have kept prices higher.
The answer might lie in the middle.
According to Consumer Watchdog, a Los Angeles advocacy organization, a small group of refinery companies supply 80 percent of the gas to the country’s branded stations. These refiners often raise costs by at least 20 to 30 cents per gallon over the real cost of gas.
It’s also worth mentioning that, when a refinery goes offline, prices rise without any incentive for companies to boost production. American daily refining capacity is now down by some 1 million barrels from what it was pre-COVID. So, the resurgence in commuting and traveling is putting greater pressure on fewer resources. And, as the U.S. works toward greener transportation and energy, some refiners have decided it’s just not worth it to resume pre-pandemic production.
What can you do?
As a July 7 TIME magazine analysis put it, the overlooked issue is that laws and market behaviors in the U.S. haven’t caught up with the multifaceted climate and energy-related problems we face.
Obviously, there are many ways to drive smarter. You can drive less frequently and more slowly, keep tires inflated and cars in top mechanical condition, and keep loads light. You can also use an app designed to locate the cheapest local gas, or find a fuel rewards program.
It also makes sense to look for non-branded stations—Costco, for example—where the same gas is available for less.
Public transit is an increasingly attractive option in bigger cities with reliable systems. The American Public Transit Association estimated that, during a gas price rise in 2018, many people could save more than $10,000 a year by changing from commuting via car to riding public transportation. One-fifth of that estimated savings was fuel costs.
And in the long term? Support politicians who can deliver affordable energy and transportation plans, and who can make the transition away from fossil fuels easier. Some support rebates, or outright repeals of federal and state gas taxes, at least temporarily. With the federal gas tax at more than 18 cents per gallon—not to mention a 53.9-cent-per-gallon California rate—that's not nothing.
Other proposals, like cutting exports and drawing on the Strategic Petroleum Reserve, seem to offer too little benefit in return for undesirable consequences.
There’s one long-term strategy that could be the smartest of all: Push for walkable cities. We really can reengineer systems and structures in positive ways: Look at all the outdoor dining areas, slow streets, new bike lanes, and other adjustments to our way of life spurred by the pandemic. Future urban planning needs to incorporate these elements, along with robust public transportation systems. Our cities can also benefit from multi-use neighborhoods, where people can work, play, and shop close to home, without having to drive long distances.