What the nation thought was a sudden increase in gas prices has now turned into a steady average of over $4 in Texas. Why are prices still high? And more importantly will they ever drop back to ‘normal’?
To begin, it's important to understand the major contributors to changes in oil price. That being COVID-19 and Russia's Invasion of Ukraine.
COVID-19: The start of the pandemic led to a massive drop in demand of oil due to less people driving everyday as well as an industry halt due to restrictions of labor and manufacturing. Now that the people are going back to work and driving regularly, demand has risen up.
RUSSIA: In the midst of Russia's invasion of Ukraine, the US laid sanctions on Russian exports of oil. Russia being a large exporter of oil used in the US, meant that the US is now experiencing a shortage in oil imports.
The underlying fact is that the oil industry is that of a business, and like any other business must follow the rules of supply and demand. Though the US has a high demand for oil as the economy and society is recovering from the pandemic, the oil industry in the US simply does not have enough supply to match demand. Therefore, oil companies must charge high prices to remain profitable.
Whether or not prices will drop is a discussion of speculation. It would seem reasonable for prices to drop once sanctions are lifted on Russian exports, though that would depend on the outcome of the war, which is still in progress. Furthermore, American demand for oil will likely not drop anytime soon, so the high demand will remain.
Rather than speculate on when and if the price of gas will drop, one should instead evaluate their current consumption of it. If possible, walk instead of drive, take more gas efficient routes, limit how much you drive everyday or even invest in hybrid or electric cars.
Written by: Ricardo Corpus