Why are gas prices so high – and when do they fall?

gas prices to reach record levels Almost daily, it causes financial hardship at the pump for millions of Americans. But it also raises questions about why fuel prices are so high — and who is to blame. Consumers also wonder when they might see some relief.

Not surprisingly, rising gas prices have a very real impact on household budgets: the typical family might bear Additional costs of $2000 this year Simply because of higher costs, according to Wall Street estimates. On Friday, gas prices again reached a new peak with an average $4.33 AAA gallons. Prior to this week, the previous record was $4.10 a gallon in 2008, just before the financial crisis.

Suddenly, fuel prices are becoming a major topic of discussion, as families budget for higher gas costs and cut spending in other areas. Some Americans are already driving less because of the higher prices. One in three adults say they have reduced their car use in the past month, and most blame gas pump sticker shock, according to Morning Consult.

How did we get here then? Today’s stratospheric gas prices have their roots in COVID-19 Pandemic, with Russia’s war on Ukraine It has pushed prices higher in recent weeks, said Patrick de Haan, head of petroleum analysis at GasBuddy.

“The general aspect is that supply and demand has changed,” he told CBS MoneyWatch. Everything has been turned upside down by the Corona virus. If not, we would be in a different situation.

Here are three reasons gas prices are going up — and when experts think they might go down.

Gas demand after the pandemic

When the pandemic first hit the US in March 2020, demand for gasoline plummeted as Americans took shelter in their homes due to nationwide lockdowns. The typical driver cut their driving in half, according to to AAA.

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

But as the economy recovered — with the spread of vaccines, making Americans feel safer about traveling and shopping — people resumed driving. With demand rising, gas prices have also started to rise. By March 2021, the average price per gallon of gas was $2.82, a 45% increase from pandemic lows.

Oil production cuts

When the demand for gas and oil fell during the pandemic, OPEC and oil-producing countries like Russia cut productionAnd reduced it by 10 million barrels in an unprecedented way. To put that into perspective, that’s 10% of the global supply.

But de Haan said that as the global economy recovered from the pandemic, OPEC had slowed to increase production. “We are approaching pre-COVID levels of consumption, but production is still lagging. OPEC didn’t start ramping up production until July 2021. They’re already late – they’ve been way behind.”

Meanwhile, US producers said they were boosting production, but warned that supplies could take some time to flow to the market and move prices at the pump, Politico. mentioned.

US sanctions against Russia affect the global market

Against the background of a steady rise in prices, the Russian war in Ukraine caused a rapid rise in gas prices. President Biden on Tuesday The United States announced a ban on imports of Russian oil and gasTargeting Russia’s main source of income amid the conflict.

The United States 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? De Haan said the increase in gas prices is due to the larger global oil market.

“When the United States imposes sanctions, this has broad repercussions on Russia’s ability to export oil,” he said. “We’re not importing a lot, but someone else is doing it and we’re making it difficult for Russian oil to flow into the world market, and prices are reacting to that.”

Turning point for gas consumers

Possibly the average price per gallon Can be up to $5. In some areas, they’ve already done so—like in California, where drivers pay $5.72 per gallon.

But where the price of gas goes from here depends on a number of factors, such as whether the United States manufactures Dealing with Venezuela To import fuel from that country, de Haan said.

It’s also important to remember that when adjusted for inflation, fuel prices today are still lower than their 2008 peak, he noted. In today’s dollars, the price was closer to $5.25 a gallon. De Haan believes that most consumers will not stop driving until prices reach the $5 per gallon mark.

“We’re not even close to that,” De Haan said. 5 dollars [per gallon] It’s the old $4, and somewhere north of $5 could be a tipping point” that downsizes drivers.

So when do gas prices go down?

Experts expect gas prices to remain high for weeks, if not months. Bill Adams, chief economist at Bank of Comica, said in a report that overall inflation is likely to worsen in March and April before improving.

“Inflation will accelerate in March and April as spillovers from the Russo-Ukrainian war drive up prices in supermarkets, gas pumps and utility bills,” Adams said.

Surveys show that a barrage of rising costs negatively affects consumer confidence.

“With soaring gasoline prices and the war in Ukraine on the headlines, it was no surprise that the University of Michigan Consumer Sentiment Index plunged to an 11-year low in early March,” Capital Economics said in a report.

Experts believe inflation may start to subside later in the year, but is likely to remain high. Ian Shepherdson, chief economist at Pantheon Macroeconomics, expects the key rate to fall to 5.5% by September, nearly triple the Fed’s 2% target.

De Haan said it is unclear when gas prices might drop because that is closely linked to the Russian war on Ukraine.

“It’s hard to tell – it could take weeks or months,” he said. “If Putin remains as president and signs a peace treaty, it will take months for countries to deal with him again because they have to gauge whether he can be relied upon. If there is a regime change in Russia, the change [in gas prices] It can come faster.”