Gas Prices Rise to New Highs as Summer Driving Season Begins

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HOUSTON — As the Russian invasion of Ukraine continues, drivers will need to spend a lot more to fill their cars as the summer travel season kicks off this Memorial Day weekend.

Regular gasoline is already over $6 in California, and it’s nearly impossible to find gasoline under $4 anywhere else. Nationwide prices rose nearly 50 cents per gallon last month.

The war in Ukraine is the most immediate cause of the price jump, as global refiners, tankers and traders avoid Russia’s exports, forcing them to withdraw up to three million barrels per day of oil from the market. Energy traders also pushed up oil prices in anticipation of Western governments imposing even tougher sanctions on Russia and its energy industry.

But another reason for the high prices is that despite all this, drivers haven’t done much to burn much less gas. Analysts said people have a strong appetite to hit the road as the United States recovers from the worst of the Covid-19 pandemic.

“Solving the problem means people have to drive less,” said Tom Kloza, head of global energy analysis at Oil Price Information Service. “But people say: ‘Sorry, I was under lock and key. I’m going on vacation this summer.”

The national average price for a gallon of regular gasoline on Friday rose from $3.04 a year ago to $4.60, according to the AAA. Airfares, which often go up and down with jet fuel prices, soared even faster.

One reason for the increase in prices is low national and global fuel stocks. About 3 percent of U.S. refinery capacity was shut down during the pandemic as oil companies shut down old, unprofitable facilities as demand contracted. Other refineries around the world were also closed.

Gasoline prices are largely determined by the price of oil, and this is determined in a global market. Analysts disagree on what will happen next, largely because international politics has become so unpredictable. Russia’s withdrawal from Ukraine will immediately bring prices down, just as the West eases its sanctions on Iran and Venezuela. A Russian climb does the opposite.

Many experts thought that energy prices would rise even more than they did. But China has drastically reduced energy demand in the world’s largest fuel-importing country by imposing strict lockdowns in Shanghai and other regions to halt the spread of the coronavirus.

A change in Chinese policy could cause prices to jump. However, if producers in the United States, Canada, South America and the Middle East begin to increase production, prices may fall.

Production in Russia, which accounts for about 10 percent of global oil supply in recent years, is expected to decline further.

However, the country was able to find new buyers for its energy in China and India. This means that Middle Eastern countries are selling more oil to Europe while selling less to Asia.

A recent report from analysts at Citi said that expectations for a massive decline in Russian production were “exaggerated”. Analysts said that Russia’s ships with tankers could be diverted up to 900,000 barrels per day to European countries that were unable to pass through or to other suppliers.

Another report released this week by ESAI Energy, a global energy market analysis firm, predicted that summer refinery output will increase in the US, Europe, the Middle East and India after seasonal maintenance. China is also trying to sell more refined gasoline, diesel and other fuels.

“These supply increases will soften summer price increases at the pump,” ESAI chief Sarah Emerson said.

“You have a lot of different puzzle pieces,” Emerson added, explaining why it is so difficult to predict energy prices. “The juxtaposition of surviving a pandemic and starting a war in Europe makes it very complicated.”

Another unpredictable variable that could push oil and gasoline prices up this summer: hurricanes. A powerful storm could topple refineries and pipelines off the coast of the Gulf of Mexico, government forecasters said. “above normal” hurricane season.

“When the real summer started, towards the end of June, you could see some real pent-up demand manifesting itself,” said Mr. Kloza of the Oil Price Information Service. “I’m scared from July because of demand growth and August because of the potential for hurricanes.”

Oil industry executives have often said that the cure for higher prices is these very high prices. This is because they force consumers to buy less fuel or switch to more fuel-efficient cars. But the drivers don’t seem to throttle or make any other major changes – at least not yet.

According to energy analysts, there are vague signs that gasoline demand could flatten or even drop slightly, at least on weekdays. Data from the Ministry of Energy for May showed that gasoline sales fell more than 2 percent compared to the same period last year. But the government measures the fuel supplied by refineries, traders and mixers, not retail sales to drivers at the pump. Analysts still expect a spike in gasoline sales during the summer, but some drivers may change their plans if prices rise too high.

In a recent survey of 2,210 adults by the American Hotel and Lodging Association, 60 percent said they will take more vacations this year than last year. However, 82 percent also said that gasoline prices will have some impact on where they go.

“The pandemic has instilled in many people a greater appreciation for travel, and this is reflected in the plans Americans have made to get out this summer,” said Association president Chip Rogers.

People also found it difficult to switch to more fuel-efficient vehicles. Sales of electric and hybrid cars are on the rise, but parts shortages have limited the supply of all new cars, and some new electric and hybrid models have months of waiting lists.

Perhaps the only positive aspect of the pandemic for consumers has been the rapid fall in energy prices as the global economy bounced off. But international oil companies curtailed investments as oil prices fell to levels not seen in decades.

Last year, as demand began to soar, oil companies struggled to rehire people and re-commission their rigs. But many oil managers are reluctant to invest too much money in new wells because they fear prices will drop before these wells begin production, leaving them with huge losses and debt. As a result, large energy companies spend most of their rapidly growing profits to pay dividends and buy back shares of their own companies.

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