WASHINGTON—The cost of a barrel of oil is $120, nearly double from last August, as increased oil demand outpaces the tight global supply. Meanwhile, domestic gasoline demand rose last week in the wake of a robust Memorial Day weekend of travel, according to AAA. As a result, the national average for a gallon of gas surged more than 25 cents in one week to hit $4.96.
“People are still fueling up, despite these high prices,” said Andrew Gross, AAA spokesperson. “At some point, drivers may change their daily driving habits or lifestyle due to these high prices, but we are not there yet.”
According to new data from the Energy Information Administration (EIA), total domestic gasoline stocks decreased by 700,000 barrels of crude oil to 219 million barrels last week. Meanwhile, gasoline demand grew from 8.8 million barrels per day to 8.98 million barrels per day as U.S. drivers fueled up for Memorial Day weekend travel. These supply and demand dynamics have contributed to rising pump prices.
Meanwhile other factors have contributed to the steep climb in prices, reports CNN. Russia is one of the largest oil exporters in the world. In December, it produced nearly 8 million barrels of oil and other petroleum products to global markets, and 5 million of that amount is crude oil.
While little of the crude oil actually goes to the U.S., oil is priced on global commodity markets, so the loss of Russian oil affects prices around the globe no matter where it is used.
With the U.S. ban on Russian imports and the EU’s recent ban on imports of Russian oil by ship because of the country’s attack on Ukraine, Russian oil is slowly being removed from the market.
"Even before Ukraine, I was expecting to break the record," Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA, told CNN. "Now it's a question of how much we break the record by."
Additionally, major cities in China are now coming out of lockdown, which is adding more demand for oil without increased supply, driving up prices.
What’s more, there is less oil and gas from other sources. Once oil prices plunged during the height of the pandemic, OPEC+ dramatically decreased production to support prices, and even when the demand for oil happened sooner than expected, production levels were still low.
U.S. oil companies have been reluctant or unable to resume producing oil at pre-pandemic levels amid concerns that tougher environmental rules could cut future demand, and it takes time to up production, especially when oil companies are experiencing the same supply chain and labor market woes as the rest of the country.
On top of less oil production, U.S. refining capacity is falling. Today, about 1 million fewer barrels of oil a day are available to be processed into gasoline, diesel, jet fuel and other petroleum-based products.
Demand is also high, but it’s still not a pre-pandemic levels. There was record job growth in 2021, and many employees are slowly making their way back to the office, increasing demand.
"I think we reach $5 somewhere between this weekend and Juneteenth/Father's Day weekend," Kloza told CNN.
More than one out of every five gas stations nationwide is now charging more than $5 a gallon for regular, and just more than half are charging $4.75.
"Anything goes from June 20 to Labor Day," Kloza told CNN. "We could certainly see the national average approach $6."
A recent NAC’ blog post, “Is Gas Tax Relief a Good Idea?” discusses how easing consumer pain at the pump is a good idea, unless it causes more problems.
The Convenience Matters podcast episode “What’s the Tipping Point for Gas Prices?” explores how much pain at the pump that consumers will tolerate and what’s ahead for the summer driving season.
Here’s what consumers should know when gas prices soar.