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US gasoline prices just hit $5 a gallon for the first time, and there’s little relief in sight.
National average prices hit $5,004 on Saturday, according to AAA, though that’s not adjusted for inflation. This milestone comes just as the peak summer driving season begins.
The news is unlikely to come as a surprise to many drivers given that gas prices have already exceeded this level in a handful of states, including California and Nevada, which has significantly strained family budgets in across the country.
Analysts are warning that gas prices are likely to rise further given that the global factors driving up crude prices are not expected to subside anytime soon.
Here are four things to know.
How did gas prices get so high?
Two main factors are driving the gas price spike: the post-pandemic recovery and Russia’s invasion of Ukraine.
Crude prices fell during the pandemic, even turning negative at one point, but demand came back strong.
Oil prices have risen again recently on hopes that China, the world’s largest energy consumer, will ease some of the restrictions and lockdowns imposed during a spike in Covid-19 cases, although the country returned to a state of alert this week.
Soaring energy prices were also amplified by Russia’s invasion of Ukraine.
The invasion led the United States and its allies to impose a wide range of sanctions against Russia, and the European Union even implemented an oil ban, a big step for a region dependent on Russian energy exports.
Due to these two factors, prices of Brent crude, the global benchmark for oil, are trading above $120 a barrel after jumping more than 50% this year.
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How does this affect the economy and people?
As expected, not too good.
Gasoline prices were a major driver of inflation, which reached its highest rate in almost 40 years.
The pain at the gas pump puts a serious dent in the budget of many households and also begins to force people to adapt.
Marlon Iberra, for example, says he now has to think about where he drives in traffic jam-ridden Los Angeles.
“It’s hard to want to go anywhere on a whim like we used to,” he says.
“Now you have to think about it. Will it be worth the price of gas?”
He is grateful to work from home most days and only have to commute two days a week.
“If I was going on a normal everyday basis, I’d be looking at around $100 worth of gas a week,” he adds.
Recent polls have consistently shown that record gasoline prices and high inflation are major contributors to pessimism about the state of the economy as the United States heads into the midterm elections in November.
So what can be done?
Not a lot.
President Biden has said tackling inflation is his top economic priority, but when it comes to cutting oil prices, there’s not much he can do.
Biden announced a plan in March to release up to 180 million barrels of the country’s emergency oil reserves, spread over six months.
The unprecedented decline is helping, analysts say, but it hasn’t been enough to dampen price gains at the gas pump.
Biden also called on U.S. oil producers to ramp up drilling, but oil producers have faced constraints including securing materials and enough workers.
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Oil companies are also under pressure from shareholders not to chase high oil prices too much given the industry’s history of boom and bust cycles.
Biden also called on the OPEC+ oil cartel to dramatically increase production.
The group announced this month that it would increase production slightly, but data shows that a handful of OPEC+ countries are producing well below their current allocations due to various challenges faced by members.
So, will the price of gas soon drop?
Simply no, unless there is an unexpected major development.
The oil embargo imposed on Russia further aggravates the imbalance between supply and demand in global energy markets and this problem is unlikely to be resolved any time soon.
In addition, refineries, which convert crude into products such as gasoline, are struggling to increase production as the industry’s total capacity has been limited by several factors, including lack of investment and disasters. natural.
In fact, analysts are warning Americans to prepare for even higher gas prices.
JPMorgan says national average gasoline prices could top $6 by August, which would be another grim milestone for drivers across the country.