3 reasons why gas prices are so high — and when they might come down

Gas prices are setting a record almost daily, causing financial pain to the pump for millions of Americans. But it also raises questions about why fuel is so expensive – and who’s to blame. Consumers are also wondering when they can see some relief.

Unsurprisingly, rising gas prices have a very real impact on household budgets: A typical household may have extra cost $ 2,000 this year simply because of the higher cost, according to a Wall Street estimate. On Friday, gas prices peaked again, averaging $ 4.33 a gallon, according to the AAA. Earlier this week, the previous record was $ 4.10 a gallon in 2008, just before the financial crisis.

Suddenly, fuel prices are a hot topic, with households anticipating higher gas costs and cutting spending in other sectors. Some Americans already drive less because of higher prices. One in three adults says he reduced his car usage last month, with most blaming the gas pump self-adhesive shock, according to the Morning Consult.

So how did we get here? Today’s stratospheric gas prices are rooted in COVID-19 pandemic, with the war in Russia in progress Ukraine pushing prices higher in recent weeks, said Patrick De Haan, head of oil analysis at GasBuddy.

“The overall aspect is that supply and demand have changed,” he told CBS MoneyWatch. “Everything was overturned by COVID. If it had not happened, we would be in a different situation.”

Here are three reasons why gas prices are soaring – and when experts think they could fall.

Post-pandemic demand for natural gas

When the pandemic first hit the United States in March 2020, demand for gasoline plummeted as Americans were sheltered in their homes due to nationwide lockdowns. The standard driver cut his driving in half, according to the AAA.

This sharp drop in demand caused gas prices to fall to an average of $ 1.94 per gallon in April 2020.

But as the economy recovered – as vaccines were released, making Americans feel safer traveling and shopping – people continued to drive. As demand increased, gas prices also began to rise. By March 2021, the average price per gallon of gas was $ 2.82, up 45% from the pandemic low.

Cuts in oil production

When demand for gas and oil plummeted during the pandemic, OPEC and oil-producing countries such as Russia production cut, reducing it by 10 million barrels unprecedented. To put it in perspective, this represents 10% of the global supply.

But as the global economy recovered from the pandemic, OPEC was slow to increase production, De Haan said. “We are close to consumption levels before COVID-19, but production is still lagging behind. OPEC did not start increasing production until July 2021. It was already too late – it was far behind the curve.”

U.S. producers, meanwhile, said they were boosting production, but warned that supplies could be slow to hit the market and pump prices could fluctuate, Politico reported.

US sanctions on Russia affect the world market

In this context of steady rise in prices, Russia’s war in Ukraine has caused a rapid rise in gas prices. President Biden on Tuesday announced a ban on US oil and gas imports from Russiatargeting Russia’s main source of revenue in the midst of the conflict.

The US imports less than 10% of its oil and gas from Russia. So why are prices so high in the US if the nation is not dependent on Russia for fuel? The rise in gas prices is due to the world’s largest oil market, De Haan said.

“When the US imposes sanctions, it has a big impact on Russia’s ability to export oil,” he said. “We do not import much, but someone else does and we make it difficult for Russian oil to flow to the world market and prices react to that.”

A turning point for gas consumers

It is possible that the average price per gallon can reach $ 5. In some areas it already has – such as in California, where drivers pay $ 5.72 per gallon.

But where the price of gas goes from here depends on several factors, such as whether the US is doing a agreement with Venezuela to import fuel from this nation, De Haan said.

It is also important to remember that when adjusting for inflation, current fuel prices are still below the 2008 ceiling, he noted. At today dollars, the price was closer to $ 5.25 a gallon. De Haan believes that most consumers will not cut back on driving until prices reach $ 5 per gallon.

“We are not close to that,” De Haan said. $ 5 [per gallon] is the old $ 4, and somewhere north of $ 5 could be a “turning point” that drives drivers down.

So when will gas prices fall?

Expect gas prices to remain high for weeks, if not months, experts say. Overall inflation is likely to worsen in March and April before improving, Bill Adams, chief economist at Comerica Bank, said in a report.

“Inflation will accelerate in March and April as the negative effects of the Russia-Ukraine war push prices even higher in supermarkets, petrol stations and utility bills,” Adams said.

However, inflation could begin to decline later in the year, falling to 5.5% by September, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.

It is unclear when gas prices could fall, as this is closely linked to Russia’s war against Ukraine, De Haan said.

“It’s hard to know – it can take weeks or months,” he said. “If Putin remains president and signs a peace treaty, it will take months for countries to work with him again, because they have to measure whether he is credible. If there is a change of regime in Russia, a change. [in gas prices] it could come much faster. “

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