Why are Gas Prices Increasing?

The war in Ukraine has caused a gas crisis in the United States, and throughout the world. In 2021, Russia accounted for a minimal amount of crude oil imports to the U.S., only 90,000 barrels a day, compared to Canada’s 4,000,000 barrels a day. In Europe, many countries heavily rely on Russia for gas, which led to their prices skyrocketing. Despite not being a major supplier of crude oil to America, Americans are still experiencing a price increase. The reason behind this is oil is bought from around the world, by every nation, so when one exporter of the commodity stops exporting, prices increase, no matter how much they export to a specific country, everyone will be affected by the increase. As supply goes down, demand goes up. Thus, even nations with low dependency, such as America, on Russian gas are affected.

Prices went down at the start of the pandemic due to low need for gas, which made the Organization of the Petroleum Exporting Countries, OPEC, nations decrease their production by 10%. Once demand started to go up again, when COVID recovery began, OPEC nations were slow to start producing again. The invasion of Ukraine led to a major increase in how much crude oil barrels cost, along with this, President Biden banned the imports of Russian oil and gas. He did this in order to strike a blow to the Russian economy, along with the many sanctions that were being placed on Russia. Not only does this affect Russia, but the United States, and American citizens. Prior to the invasion, during the buildup of Russian forces on the border alone, the price of gas rose by 75 cents in America.

Image of OPEC and OPEC+ states courtesy of Wikimedia Commons, 2022

What is Biden’s Plan?

As prices are expected to remain high or even increase for the next few weeks or months, many people are focused on what Biden intends to do about it. Some areas may even reach five dollars a gallon, California already has, experiencing a high of $5.72/gallon. Biden plans to release one million barrels of oil every day for the next six months, in an attempt to bring prices down. He will be releasing this from the Strategic Petroleum Reserve, which consists of multiple underground storage facilities in Texas and Louisiana, all of which can house up to 714 million barrels of oil. The President has stated that this could slash the prices by 35 cents a gallon, and then they would go down slowly from there. 

Along with the release of oil from the reserve, Biden has requested that Congress force oil companies using federal land and not producing oil to pay fees. Along with this, he and other political leaders overseas have requested that OPEC increase their production, however OPEC has said that it would be extremely difficult for them to increase their production to replace the missing Russian oil. OPEC has only planned to increase their production to 432,000 barrels a day starting in May, ignoring the requests of Biden and other leaders. If supply only goes up slightly, demand will only decrease slightly, having a minimal impact on the price. Not only this, but Russia is an OPEC observer, and loosely involved through the so-called OPEC+, maintaining good relations with some nations in the organization. Many OPEC states are subsequently not in a rush to increase their production.