Why Are Gas Prices So Damn High?
By: Tyler Williams
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From the fuel efficient sedans to the gas-guzzling pick-up trucks, gas has gotten more expensive. According to the United States Energy Information Administration, (EIA), the national average for gas prices is $4.87 per gallon. While the average driver may blame the President of the United States, the Russian and Ukrainian conflict, or foreign affairs for the current price, here are the reasons why gas prices are high right now.
In a nutshell, the main issue is supply and demand in oil. Remember your first business or economics class when you learned about the Law of Supply and Demand? The basic fundamental rule of this law is the following: high demand, low supply. Low demand, high supply. In other words, if goods and services are limited in production, the consumer demand will increase. The consumer demand will decrease if the supply of goods and services are in an abundance or a surplus. The former statement is the current issue that the United States and the world is facing right now when it comes to gasoline.
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Additionally, when supply is scarce and demand is up, it leads to producers increasing the price of the good or service. “It's a fundamental economic principle that when supply exceeds demand for a good or service, prices fall. When demand exceeds supply, prices tend to rise”, according to Investopedia.
With this theory in mind, Business Insider has pointed out the amount of vehicle miles traveled, plummeted in spring 2020 when COVID-19 was at its peak. However, the vehicle miles traveled increased over the summer in 2021. “That increase in the amount of driving Americans are doing also means an increase in demand for fuel for cars.”
The COVID-19 pandemic has developed a global supply chain crisis and its currently a disservice for both producers and consumers. “Consumers flush with cash and pandemic restrictions combined to drive demand for goods through the roof. Economist Phil Levy doesn’t see a return to normal until at least 2023”, Wall Street Journal says.
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Currently, we know why gas prices are increasing, the question is what can be done about it? Better yet, is there anything President Biden can do about this issue? Recently, Forbes has noted that President Joe Biden decided to release millions of reserve barrels last month to push prices down. The EIA credits his decision, as well as a downgraded oil consumption forecast due to the Omicron variant, for its forecast of lower prices—but it also warns that these projections could change.
All hope is not lost. There has been a forecast by the EIA regarding gas prices to decrease during the midyear of 2022. The U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook forecasts “the average retail price for regular grade gasoline averaged $4.44 per gallon (gal) in May, and the average retail diesel price was $5.57/gal. Rising prices for gasoline and diesel reflect refining margins for those products that are at or near record highs amid low inventory levels.”
For now, Forbes has offered four ways to save on gas; use gas apps to find cheap gas near you, enroll in gas rewards programs, take advantage of grocery store rewards programs, and buy gas with a cash back credit card. So, all we can do is hope and pray for our wheels and wallets that production will begin to pick up so that the prices will decrease at an affordable level. Thanks a lot COVID-19.
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