Rising gas prices: Spring break demand expected to fuel continued increases
Gas price increases caused by Russia/Ukraine uncertainty may be leveling out.
After nearly two years of a health pandemic and recent instability between Russia and Ukraine, gas prices are finally stabilizing.
But the annual spring break price increase is right around the corner.
It's too early to predict how different global activity will affect gas prices in the coming months, but for now, prices have found a fragile stability, said Meredith Smith, American Automobile Association public affairs specialist.
So there's still too much uncertainty for the pumps to drop all the way back down. And the crude oil prices haven't dropped all the way back down. But they've stopped increasing and started coming in that way. So there have been stations throughout the United States that are starting to come down.
"Gas prices we've seen over the last couple weeks are very closely tied to the conflict between Russia and Ukraine," Smith said. "This is because Russia is a major oil provider. There was a lot of uncertainty in a market that was already volatile and very tight on oil, so nobody really knew exactly what was going to happen and how the different things were going to play out with sanctions, the invasion and all of those different contributing factors causing a little bit of a panic in the markets, so the crude oil prices went up."
Russia is not a major oil producer for the United States, which only uses 3% of Russian crude per year. As such, uncertainty over the invasion of Ukraine has instead indirectly impacted U.S. gas prices not by reducing the supply of crude available in the states, but by impacting the crude oil prices abroad.
"As the global crude oil prices go up, so do the prices in the United States," Smith said. "That's because we are still providing oil to other countries and that's just where the market is."
Crude oil prices are traditionally most affected by supply and demand. That was the case pre-invasion as well, when after two years of coronavirus-fueled caution, travel has exploded throughout the United States.
"There was a lot of uncertainty with people staying at home, so there was no demand," Smith said. "Then we were able to go out again and suddenly there was demand and we saw those changes reflected at the pumps."
Early pandemic restrictions resulted in plummeting gas prices in April 2020 (which threatened oil rig jobs in the United States), but by June 2020 prices were already starting to creep back up as more and more states were removing restrictions and travel was picking up once again.
"There's been a pent up demand to travel," Smith said. "So it's been a solid two years, two and a half years since people have really been able to go out and be able to travel the way that they want."
Smith said price increases have corresponded with increased travel, including businesses reopening, customers returning, commuters returning to their offices, vacationers traveling, athletic activities and many other drivers of demand. To complicate things, as demand was increasing, producers experienced supply level issues.
Ramping back up apparently isn't that simple.
"It takes a while to produce the gas to meet the demand that is ever changing," Smith said. "And so that's what's part of what is causing those impact increases at the pump prior to this conflict."
In addition, supply from various United States based operations has had extreme weather to contend with, including record cold temperatures that caused brown outs and shut down production in Texas for two weeks in February 2021. This extreme weather event reduced production in the United States by an estimated 40%.
"You'll see gas price changes around major tropical storms, major blackouts, major ice and snow, whether it's shutting down a refinery, putting a pipeline out of commission for a little bit or just physically getting trucks to be able to deliver," Smith said. "That all impacts the supply side. Then the demand side is that people are starting to travel again and go back to work."
Contrary to anecdotal evidence, Smith said there isn't any clear indication that President Biden's moratorium on new oil drilling leases or his decision to pull construction permits for the Keystone XL pipeline impacted prices in today's market, as neither of them impacted production or supply. She said it is too early to predict how such changes could affect future prices.
Some hold out hope that oil prices could further improve if OPEC Plus increases crude production in the coming months. In April 2020, then-President Trump brokered a deal with the alliance of 23 oil producing countries known as OPEC Plus to actually prop up oil prices by limiting supply.
At the time, rock bottom crude prices were threatening the jobs of U.S. oil industry workers. Crude cost so little at the time, employees of U.S. oil producers were concerned about receiving paychecks. Smith was unable to comment on the matter.
With the new NATO sanctions on Russian oil there is now less uncertainty in the market, leading to a tentative stability that resulted in a slight drop in oil and gas prices over the weekend.
Drivers might not be in the clear yet, however, as the increase in travel that comes with spring break means a demand-driven increase could be coming. This increase is an annual occurrence, as is the traditional switch to summer blend gasoline and the general increase in travel over the summer.
"So the reason that we see a change in gas prices around that time is refineries stop making one of the two blends and start making the new one," Smith said. "So you have to get the old one out of the gas stations and the new one made and into the gas stations. So it changes a little bit. That supply and demand, as we know, is what feeds directly into gas prices.
"So we usually see prices go up over the summer months," she said. "It's because people are out of school. Families are taking vacations and taking advantage of those longer days and the warmer temperatures to be able to travel without fear of snowstorms and ice. And without having as much conflict with school scheduling."
Those summer months see an extreme increase in travel, with the time between Memorial Day and Labor Day labeled as the "100 deadliest days of summer" because of the number of people on the roadway and, consequently, the rise in traffic fatalities.
There are still many questions about how the geopolitical atmosphere between Russia and Ukraine could continue to tilt gas prices. Traditionally, gas price increases can be very closely linked to supply and demand, but as with the past two weeks, global conflicts can affect the equation.
"So there's still too much uncertainty for the pumps to drop all the way back down," Smith said. "And the crude oil prices haven't dropped all the way back down. But they've stopped increasing and started coming in that way. So there have been stations throughout the United States that are starting to come down.
"And so if the oil prices continue to go down, hopefully we will not see the increase at the pumps and the gas pump price will also continue to come down a little bit more," she said. "But because there's still that uncertainty, and there's an increasing demand, it could level out and stay around this price."
AAA has been a primary source for tracking gas price trends for over 20 years. The association started tracking price trends to better serve its members.
"Gas prices affect our organization and our members on two different levels - those that are hitting the road and those that are planning on traveling, whether it's just around the nation on a road trip or overseas and taking in sights, because gas prices impact both of those major parts of our lives' travel and our day-to-day driving," Smith said. "And so we keep a track and make sure we know what's going on with the crude oil and with gas prices and what's going on around the world as it impacts what we are seeing for our members on our roadways."
Smith said gas prices are not yet equal to the record high for the area, which was $4.28 per gallon for regular unleaded on May 20, 2013. The national high was in 2008, but the Upper Midwest experienced a later increase in 2013 due to pipeline issues.
Travis Grimler is a staff writer for the Pineandlakes Echo Journal weekly newspaper in Pequot Lakes/Pine River. He may be reached at 218-855-5853 or email@example.com.