Why Gas Prices Are So High Right Now

Gasoline prices hit $5 a gallon on average for the first time in U.S. history this week, and there’s little sign that relief is coming soon.

There are many places where you can feel the pain, including gas stations across the nation. California drivers have been the most affected. According to American Automobile Association (AAA), the cost of a gallon in California is $6.43. According to the American Automobile Association, the national average cost per gallon of gas is $5.01. In 21 states, it is more than $5. Legislators are trying to quickly find solutions as the conflict in Ukraine continues and inflationary pressures rise.

On Wednesday, President Joe Biden called on major U.S. oil refiners to ramp up production of gasoline and diesel, slamming oil and gas refiners that he said had “tripled” their profit margins while American families face a crunch on prices. “The crunch that families are facing deserves immediate action,” Biden wrote in a letter to seven oil refiners. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis.”

But experts have warned there’s not much lawmakers can do to immediately curb inflation, warning that gas prices will likely continue to rise in the coming months.

Here’s what you need to know.

Why is gas still so expensive?

A number of factors have led to the current situation, including increased demand for gasoline, Russia’s invasion of Ukraine and supply chain disruptions induced by the pandemic.

Due to COVID-19 lockdowns, more Americans are driving to work and have been using their cars to commute. Oil companies had to rapidly increase oil production in order to satisfy growing demands. Many of these companies had shut down wells and laid off workers during the pandemic—a time when crude prices were so low that some traders were willing to pay as much as $37 per barrel to avoid being stuck with their holdings.

This has been a target of the White House, who accuses oil companies of deliberately not increasing production to increase their prices. However, oil companies claim they do not keep oil prices artificially high in order to retain high profits. “There’s been a move domestically for a lot of the oil and gas producers to shore up their books,” says Harrison Fell, a senior research scholar at Columbia University’s Center on Global Energy Policy. “That means spending less on exploration and expanded drilling and spending more on paying down debt and increasing returns to shareholders.”

The war in Ukraine has also contributed to the spike in energy prices, and continues to upend global oil and gas markets four months after Russia’s invasion. When the U.S. and E.U. invaded Ukraine, oil supplies took a huge hit. In an attempt to force Russia into retreat, the U.S. and EU banned Russian oil imports. The move caused market volatility, and led to higher prices for oil.

All of these factors, taken together, have driven Brent crude oil, an international benchmark for oil, up from $95 per barrel in March, to over $120 this week.

What is the legislative proposal?

The issue of inflation has become a political nightmare for Biden, who referred to the rising costs as the “bane of our existence” on Jimmy Kimmel’s show last week. Even though the White House took unprecedented actions, including the record-breaking oil release from its strategic reserves, they have not had much impact. Gas expenses at more than $5 per gallon are a major drain on household finances, and legislators are working fast to solve the problem.

“I’ve been struck by the lack of appetite in either party to talk about things that could be done in the near term to suppress demand,” says Barry Rabe, a professor of political science and environmental policy at the University of Michigan. “We’ve heard very little from Congress in the last two years on energy, despite all of the initial hoopla, and it’s not clear what energy policy is going to look like after the November election.”

Biden’s main strategy so far has been to convince U.S. oil producers to ramp up drilling. It’s been met with resistance, however, as oil companies face pressure from shareholders not to chase high oil prices. “Their hands are somewhat tied,” Fell says. Domestic oil producers, like ExxonMobil, are private companies that have a right—and in some cases a duty—to respond to market challenges with their shareholders in mind. “It’s a hard thing to undo—you can’t go up to them and say stop giving dividends to your shareholders and start dumping that money into oil and gas exploration.”

Rabe suggests that legislators can create market incentives for producers of oil to accelerate production. According to the Penn Wharton Budget Model, the White House is considering implementing a federal gasoline tax holiday. This could lower average gasoline consumption by $16-$47. The suspension of the tax which is approximately 18 cents per gallon for Americans would need to be enacted by Congress. However, some legislators are opposed to the notion of losing crucial tax dollars that could fund infrastructure projects across the nation.

Lawmakers have also discussed focusing their efforts on increasing the fuel efficiency of vehicles—making it more convenient to buy electric cars—or even expanding infrastructure for public transportation as potential solutions. Fell says that while this could be done, it would likely take years for the effect to become real and has little immediate impact on gas prices.

What time can customers expect relief?

It’s unclear when gas prices will fall, but the global factors pushing up crude prices are unlikely to ease anytime soon. JPMorgan analysts estimate that gas prices will rise by 37% to $6.20 per gallon in August.

The war in Ukraine—and subsequent restrictions on Russian oil—is showing little sign of being resolved. The U.S.’s refineries still have not increased their production as they consider the risks and shareholder pressure. Experts say that the Organization of the Petroleum Exporting Countries has committed to modestly increasing production between July and August. Biden will visit oil-rich countries next month in order to build a stronger relationship with the leaders of the Middle East. However, a few members have been producing far below what they are allowed to.

“These aren’t super quick fixes,” Fell says. “Getting more oil refined and into gas stations is a much longer process that won’t provide relief until maybe several months.”

Here are more must-read stories from TIME

To Nik Popli at


Related Articles

Back to top button