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| Photo from Unsplash |
Many ask, "Why are Gas Prices So High?"
Let's dive into some of the reasons.
Oil Production
Crude oil is the most valuable commodity by trading and one of the most widely used in the world. Which, of course, oil production plays a large role in the supply and demand equation of oil prices/gas prices. The world's oil supply is controlled by OPEC+ (an alliance between the Organization of the Petroleum Exporting Countries and other major oil producers). The decision was made in 2020 to cut production after the COVID19 lockdowns that reduced demand. After demand increased in 2020, the production increased slowly but the demand was more than the supply. This caused a slow but steady increase in oil and gas prices.
The production of oil in the US has returned to the level for July 2019 after decreasing slightly in 2020 and 2021, and it is projected to keep rising.
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| Source EIA |
Global Turmoil
The turmoil between Russia and Ukraine escalated in February 2022 causing a significant jump in oil and gas prices. You can see below the increase was 50% for both items. This turmoil quickly changed the projected supply when many said they would not buy oil from Russia. However, some countries have continued buying which has helped with supply.
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| Orange is Gas $/Gal, Blue is Oil $/bbl Source Macrotrends |
Political Changes
It is easy to blame a president or a political party for the increase. However, most claims are not rooted in the facts. Every president makes changes to the policies when they take over. Based on the data we have reviewed above, the increases in oil and gas prices are not rooted in the changes made by the current president. However, it is up to each person to decide for themself and I have presented the facts. Please note this is not an endorsement of any president or political party.
Conclusion
There are lots of great data on the public internet to be reviewed. We have just looked at a few of the factors that cause the increase in gas and oil prices. However, it is evident that gas prices are driven by oil prices, supply, and demand. It seems the supply is increasing monthly so the price will slowly make its way down, but it is unknown where it will settle. Let me know what you think in the comments below.
