Gas prices are up. How high will they go?
Average gas prices in the Philly area have soared 14% in just one week. Here's why.
Average gasoline prices in the Philadelphia area have soared 14% in just one week to an average of $4.30 a gallon on Monday, as Russia’s invasion of Ukraine has unsettled global energy markets.
The pump prices surpassed the previous high of $4.16 set in 2008, according to AAA and GasBuddy, though if you factor in inflation, the 2008 price would be the equivalent of $5.32 today.
Where they will stop, nobody knows.
Why are gas prices so high right now?
Worldwide energy prices were rising for the last year before Russia invaded Ukraine on Feb. 24, causing the price of crude oil to skyrocket. A barrel of crude oil, the primary raw material for gasoline and diesel fuel, traded above $130 on Sunday and closed Monday at about $119. That compares to $92.31 a barrel a month ago or $72.36 a barrel three months ago.
In other words, the price of crude has increased about 60% since Dec. 8. The average gas pump price in Southeastern Pennsylvania, which stood at $3.57 on Dec. 8, has increased 20% over the same time.
Crude oil prices respond to a number of factors, including economic and political outlooks, as well as supply and demand. A barrel of oil barely fetched $20 in April 2020 when worldwide energy demand collapsed and the world was awash in surplus oil as the economy abruptly slowed during the pandemic lockdown.
Crude oil prices began to recover after producers curtailed production and energy demand picked up steam as the revived economy kicked back into gear in 2021.
The outbreak of a major war in eastern Europe that could escalate beyond Ukraine has injected much uncertainty in the markets because of concerns that Russian oil, which accounts for 10% of world supply, will be cut off or curtailed. Even countries like the United States, which is not heavily reliant on Russian crude, would be impacted because oil prices here are tied into global markets.
How high will gas prices go?
Gasoline prices will continue to rise as long as crude oil prices rise and consumers continue to pay the higher costs.
“Forget the $4 per gallon mark, the nation will soon set new all-time record highs and we could push closer to a national average of $4.50 per gallon,” said Patrick De Haan, head of petroleum analysis at GasBuddy, said in a statement on Monday. “California could be heading for $5.50 per gallon with more stations charging $6 and beyond.”
There is also uncertainty as lawmakers in the United States and Europe consider a ban on Russian oil and gas imports, which have not yet been included in sanctions on the country and its leader, President Vladimir Putin. There are growing calls among legislators of both parties to support a bill that would ban Russian energy.
Energy demand is fairly inelastic, which means that consumers do not immediately respond to sharp increases in prices. UPS and Amazon still need to make deliveries, and people still need to heat their homes and charge their phones.
With prolonged high prices, consumers may curtail some travel and invest in more fuel-efficient vehicles or dwellings. Higher energy prices could also cause the economy to cool down, reducing consumption and energy demand.
Will gas prices go down soon?
That seems unlikely, given that a war has broken out in eastern Europe that has already displaced 1.7 million people and has a risk of escalation. The world is becoming less stable, and that’s not good for reducing energy prices. Crude oil prices are driven by speculation on more instability.
“We’ve never been in this situation before, with this level of uncertainty,” said De Haan.
The price at the pump usually goes up more quickly than it comes down. Even if peace breaks and crude oil prices subside, the price of a gallon of gas might recede gradually.
Is there a connection between gas prices and who the U.S. president is?
This is a perennial question that has bedeviled presidents for generations, and provides campaign ammunition for political partisans. Rising energy prices, particularly for motor fuels, almost always generates popular discontent wherever it happens around the world.
There’s a lot of evidence showing the energy prices do not move in lockstep with the policies of the White House. Gasoline prices peaked when George W. Bush was in office, plunged to their lowest point in decades under President Obama in 2016, and hit a low point again in 2020 when President Trump was in office. Price drops usually coincided with economic downturns.
Oil and gas producers make long-term investment decisions based upon economic opportunity. Worldwide oil and gas prices generally have declined since 2008, which coincided with a dramatic increase in oil and gas production in the United States from hydraulic fracturing of shale.
President Joe Biden’s opponents have promoted a narrative that his administration’s “war on fossil fuels” has triggered the runup in prices, including the cancellation of the Keystone XL crude oil pipeline and the cancellation of oil and gas leases on federal land.
But Biden’s supporters point to evidence they say shows those decisions had minimal impact on oil prices last year, which increased because demand from the rebounding global economy, compounded by supply chain disruptions, caused demand to exceed supply.
When have gas prices been this high in the past? What was happening then?
Prolonged increases in energy prices in the past have triggered popular discontent, often followed by technological innovation.
During the 1973 Arab-Israeli War, Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States that resulted in shortages, dramatic price increases, and gas lines. The 1979 Oil Crisis, was caused by a drop in oil production after the Iranian revolution, also creating price spikes and panic.
The 1970s oil shocks created an upsurge in innovation to reduce U.S. reliance on imported energy. Vehicle fuel efficiency standards improved, disrupting the auto industry. Municipalities adopted stricter building codes incorporating energy efficiency. Property owners invested in retrofits to conserve energy. The electric power industry ramped up a buildout of nuclear power plants to reduce electric generation reliance on petroleum.
The 1990 Iraqi invasion of Kuwait caused crude oil prices to more than double in three months, though the price spike subsided by the following year after the U.S.-led United Nations intervention.
Oil prices also moved up steadily between 2000 and 2008, when many pundits predicted the world had already hit “peak oil” production, and worldwide oil shortages would ensue. During that time, Republicans and Democrats in a number of states including Pennsylvania united to enact energy portfolio standards to require electric utilities to purchase an increasing amount of their power from renewable energy generators.
The high oil and gas prices induced producers to develop new methods for fracking shale formations to extract oil and gas, leading to a dramatic growth in U.S. energy production. A decade later, prices had declined and world oil production rose to hit a new high in 2018.
The Biden administration has been pushing for more widespread adoption of electric vehicles to reduce emissions. Rising fuel costs may induce more sales.
Until I get an EV, where can I find the cheapest gas?
Most motorists know where the best prices for gas are in their neighborhood. Both GasBuddy and AAA operate websites that allow users to search for the best prices in their area, as reported by other motorists. Both websites were sluggish Monday afternoon, possibly from high traffic.
According to GasBuddy price reports, the cheapest station in Philadelphia on Sunday was priced at $3.67 per gallon while the most expensive was $4.99 per gallon. A check of the websites on Monday showed few stations below $4.10 a gallon that were not named Lukoil, the target of a anti-Russian consumer boycott.