FOR THE WEEK OF JUNE 27, 2022
Summer travel impact: Here's why gasoline prices steadily spin higher across U.S.
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American drivers are paying record prices for gasoline. So summer trips by vehicle with your family will be costlier because filling the tank costs over $5 a gallon nearly everywhere. In some areas, it's $6 or more. This month's continuing spike has various causes, including Russia's invasion of Ukraine. Economic sanctions by U.S. and European leaders have cut off Russian oil exports, a major source of the raw material for gasoline. A large Wall Street firm, Goldman Sachs, recently warned clients about "unsustainably low levels of global oil inventories."
But Russia's war isn't the only reason. Average gas prices were already expected to pass the $4-a-gallon mark for the first time since 2008 because of rising demand as pandemic lockdowns end, business and leisure travel increases, and airlines resume fuller scheduled. All that boosts demand for gasoline, diesel and jet fuel made from petroleum. Summer travel also traditionally raises consumption and prices, reflecting an economic factor called supply and demand. Plus, with prices in Europe even higher than in the United States, U.S. and Canadian oil producers have increased oil and gas exports – further limiting supplies here.
At the same time, U.S. refiners hesitated earlier to return gasoline production to pre-pandemic levels amid concerns that tougher environmental rules could cut future demand. Now it's hard to scale up production while oil companies face the same supply chain and hiring challenges as thousands of other U.S. businesses. In addition, state and federal environmental rules lead some refineries to shut older plants rather than investing what it would cost to keep them operating.
President Joe Biden last week asked oil producers to cut costs for Americans by expanding gasoline supplies. "There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing," Biden wrote to executives. "But ... historically high refinery profit margins are worsening that pain." Oil executives said at a U.S. House hearing in April that they're not engaging in price gouging and are working to shift to cleaner energy, which is why production of traditional fuel isn't up significantly. "Today's crisis and the pressure on hydrocarbon supplies and prices reveal the urgent need to accelerate the energy transition," testified Gretchen Watkins, president of Shell USA.
Exxon leader says: "The uncertainty of supply in a tight market with growing demand leads to significant price volatility — which is what we are seeing today." – Darren Woods, chief executive
Biden says: "At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable." – June 15 letter to U.S. oil producers
Industry expert says: "Economics mandate you make more [higher-priced] jet and diesel fuel to the detriment of gasoline." – Tom Kloza, top energy analyst at Oil Price Information Service in Rockville, Md.
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