As U.S. gasoline prices continue to break records, putting enormous pressure on American wallets and threatening economic growth, analysts predict that the pain at the gas station will cause some demand destruction in the months ahead of the U.S. summer driving season.
Oil prices climbed to a two-month high on Thursday on signs of tight supplies. But despite soaring prices, the highest inflation in more than 40 years and the stock market plunging, most American drivers are still fueling up this Memorial Day weekend, according to the American Automobile Association (AAA).
An estimated 39 million people will travel more than 80 kilometers (50 miles) from their homes this weekend — an 8 percent increase from last year, when gasoline averaged $3 a gallon.
“COVID-related risks have dampened travel over the past two summers. People seemed willing to accept high gas prices this weekend, but it won’t be long before those high prices start to destroy demand,” said Reed Black, deputy director of the Atlantic Council’s Center for Global Energy Moore told Al Jazeera.
According to AAA, all 50 states have National retail price As of this week, more than $4 per gallon, of which Oklahoma The cheapest natural gas is available at $4.03 a gallon, while California offers the most expensive at an average price of $6.06 a gallon.
With the price of a gallon of gas exceeding the hourly minimum wage in some states, more and more American households are taking out credit cards to cover their debts.
pent-up demand after consumers have been trapped over the past two summers and Brent is up nearly 50% this year – largely due to Russia’s invasion of Ukraine and the Organization of the Petroleum Exporting Countries (OPEC) ignoring U.S. President Joe Biden’s demands to pump more Crude Oil – All of this is driving oil prices higher.
Memorial Day, the last Monday in May, unofficially kicks off the start of summer, with millions of Americans taking a drive-thru vacation. Gasoline prices are expected to continue to rise as they prepare to hit the road in the coming months.
Analysts who spoke to Al Jazeera warned there was little that could be done to bring prices down quickly.
No Good: The International Politics of Oil and Gas
Two years ago, the coronavirus pandemic wiped out demand for crude as restrictions and lockdowns led to a massive reduction in travel. Since then, OPEC and its allies — a group known as OPEC+ — have agreed to gradually add more barrels to the market to keep prices stable.
But oil prices rebounded quickly as demand recovered. As U.S. oil and gasoline prices soar, President Joe Biden tries to intervene. He urged OPEC+ to release spare capacity. OPEC+ Refuse.
“The Saudis rejected him outright. Biden has a bad relationship with Saudi Arabia,” Jim Crane of Rice University’s Baker Institute for Public Policy told Al Jazeera. “The Saudi leadership doesn’t want to do him any favors.”
Even in recent weeks, the aftermath of the Russia-Ukraine war has sent global benchmarks Brent and West Texas Intermediate both above $120 a barrel, but it hasn’t done any good.
Saudi Arabia, the cartel’s top leader, is still not experiencing a supply crunch. The kingdom’s foreign minister, Prince Faisal bin Farhan Al Saud, told the World Economic Forum in Davos, Switzerland this week that he did not expect an immediate oil shortage, but only a limited shortage of petroleum products. .
Riyadh posted a budget surplus of $15.33 billion in the first three months of 2022, according to the Saudi Finance Ministry.
Russia, the world’s second-largest supplier, is increasingly isolated from Europe and the United States, which has imposed some of the toughest economic sanctions on Moscow as punishment for its invasion of Ukraine.
In turn, the Kremlin threatened to cut off oil and gas supplies to European markets, which pushed up prices. Meanwhile, petrol prices in the UK have broken several records in recent days.
‘Low-hanging fruit’: record gasoline prices in election year
High oil prices are a wildcard for any U.S. president. In an election year, they could wreak complete political havoc. But the reality is that gasoline prices are set internationally, Crane told Al Jazeera.
“What Americans pay is based on the trade and investment decisions of thousands of players around the world. But it’s not as sexy as saying that Biden’s failed policies are to blame,” he added.
“Voters take high oil prices for the president and his party. That’s an easy target for Republicans this year. They’ll tell you that under Trump, prices are lower because of Trump. That’s nonsense. Eight,” Crane said.
The current options for a Biden administration are limited. The president can release more oil from Strategic Petroleum Reserves (SPRs), which are reserves used in national emergencies.Biden has pat these reserves twice last yearbut the price relief is short-lived.
“Unfortunately, a Biden administration is in a pretty difficult position. Gasoline prices are a big problem for voters. There are not many simple levers for the government to fix prices,” Blackmore told Al Jazeera.
This week, the U.S. energy secretary said Biden would not rule out limiting exports to ease domestic fuel price costs. According to Blackmore, the proposal would not provide the immediate relief Biden sought and could actually increase uncertainty and instability in the market.
Transition and Changed Behavior
Americans are particularly vulnerable to rising gasoline prices because they drive large, inefficient vehicles, Crane said.
As prices rise, people may be forced to change their behavior. They may be more inclined to take the bus, work from home, downsize their vehicle or bike to work.
Speaking to reporters in Japan earlier this week, Biden acknowledged high oil prices, adding that the U.S. and the world were going through an “incredible transformation” and expressed hope that “when it’s over, we’ll… reduce reliance on fossil fuels”.
Al Jazeera analysts predict a bumpy road ahead for oil and oil alternatives.
“We’re looking to transition to a lot of things now, but the minerals are also very unstable. Look at how nickel prices have changed in recent weeks,” Blackmore said.
Nickel prices have surged nearly 55% from May last year due to supply threats from Russia’s war in Ukraine. Nickel is a key ingredient in the lithium-ion batteries used in most electric vehicles (EVs).
Analysts say the president may exercise some power over demand. To reduce the impact on higher prices, Biden could demand higher fuel economy standards or subsidize electric vehicles.
“But for a market looking for quick solutions, these are long-term solutions,” Blackmore said. “People are willing to take a higher price environment to do the things they’ve been restricted from doing because of COVID. But we’re in a very tough situation that won’t ease off any time soon.”