ALEXANDRIA, Va.—Gas prices are surging across the U.S. The national average for a gallon of regular gasoline hit $4.07 today, according to AAA, which is only four cents from the record high recorded in July 2008. Meanwhile, California gas prices set a new record average of $5.34 a gallon today, according to AAA.
Crude oil is trading for sky-high amounts, pushing up gas prices at the pump amid Russia’s war on Ukraine, with crude oil rising more than 20% last week. Frenzied trading continued Sunday evening, with oil prices briefly topping $130, according to OPIS.
Russia is the second-largest producer and exporter of oil and gas—producing about 10% of the world’s supply—but many buyers are snubbing Russian products, despite U.S. and Western ally sanctions allowing Russia’s energy trade to continue. CNBC reports that 66% of Russian oil is struggling to find buyers, creating supply fears in a tight market.
“Oil buyers are reducing their purchases of refined products from Russia, causing Russian refineries to shut down,” Andy Lipow, president of Lipow Oil Associates, told CNBC. “Dockworkers are refusing to unload vessels carrying oil and gas. Insurance rates are skyrocketing, causing vessel owners to cancel ship bookings loading in Russia, and this is also impacting on the ability of Kazakhstan to sell their oil.”
Last week, President Biden announced his administration would release 30 million barrels of oil from the government’s reserves to help “blunt gas prices here at home.” The U.S., along with its allies, agreed to collectively release an initial 60 million barrels of oil from strategic petroleum reserves.
Releasing oil from the government’s reserves is one of few, limited ways Biden can buffer Americans from higher prices at the pump. NACS dived in to whether the President controls gas prices in a Convenience Corner blog post.
“Every politician wants to take credit for keeping gas prices in check, or better, lowering them, and every one running against an incumbent wants to pin blame on the person in charge, it makes sense that politicians would do everything in their power to keep gas prices low. Especially presidents,” wrote Jeff Lenard, NACS vice president of strategic initiatives. “[Presidents] have very little control over it. Yes, policies and legislation can certainly play a role, but gas prices are largely dictated by oil prices, and oil prices are dependent upon supply and demand.”
(NACS sorts fact from fiction about gasoline prices in a series of popular Convenience Corner blog posts: “Why Gas Prices Are Rising When They Should Be Falling,” “Who Makes Money Selling Gas?”, “Will We See $4 Gas?” and “Will Gas Prices Affect Summer Travel?”.)
The NACS Fuels Resource Center also provides context around fueling issues, including the backgrounders Convenience Stores Sell the Most Fuel | NACS and How Gas Is Priced | NACS (convenience.org).
Meanwhile, some analysts are starting to sound the alarm about potential demand destruction as oil prices surge, Michael Hewson, chief markets analyst at CMC Markets, told the Wall Street Journal. “It’s hard to see much in the way of significant upside for stock markets now against a backdrop of continued escalation” in Ukraine, he said.
Demand destruction is a sharp downward drop in demand for oil or another commodity. It can be triggered by things like fast-rising fuel prices or a pandemic, for example.
“As it currently stands, demand destruction is the only thing that could cool off prices,” Denton Cinquegrana, chief oil analyst, OPIS, told TransportDive. “There’s not much you can do if the economy is growing.”
Cinquegrana will present his outlook for fuels at the NACS State of the Industry (SOI) Summit April 12-14 at the Hyatt Regency O’Hare, Chicago. Registration is open.