Fuel Costs Soar as the Summer Gets Underway

by Wall Street Rebel - Michael London | 05/27/2022 7:37 PM
Fuel Costs Soar as the Summer Gets Underway

Despite that gas prices have risen 50 cents over the last month and are at an all-time high in the United States, the American Automobile Association (AAA) estimates that nearly 35 million people will travel by car for a holiday.


This coming Memorial Day weekend marks the beginning of the busiest travel period of the year, and drivers can expect to pay a significant premium at the gas pump due to Russia's ongoing invasion of Ukraine.

The price of ordinary gasoline has already increased to more than $6 per gallon in California, and it is extremely difficult to obtain petrol for less than $4 per gallon anywhere else. Over the past month, prices have increased by close to half a dollar per gallon across the country.

This is the most immediate cause of the recent spike in prices. Because of the conflict in Ukraine, global refiners, tanker firms, and traders have shunned Russian shipments, which has caused up to three million barrels of oil to be removed from the market each day. Energy dealers have also pushed up oil prices, assuming that Western governments impose even harsher sanctions on Russia and its energy industry. This has led to an increase in the price of oil.

However, despite the high prices, drivers have not taken many steps to significantly reduce the amount of gasoline they consume, which is another factor contributing to the high prices. As the United States continued to recover from the most severe effects of the COVID-19 epidemic, analysts noted that Americans appeared to have a strong desire to get back out on the open road.

According to AAA, the price of a gallon of standard gasoline across the country averaged $4.60 on Friday, which is an increase from the price of $3.04 a year ago. Airfares, which generally rise and fall in tandem with changes in jet fuel price, have increased at an even quicker rate.

The fact that national and global gasoline supplies are low is one of the reasons why prices have been climbing. During the pandemic, oil corporations shut down older, less profitable plants in response to a drop in demand, which resulted in around 3 percent of the United States' total refinery capacity being brought offline. Additionally, refineries located worldwide were forced to close their doors.

The price of oil, which is established on a global market, is a significant factor in determining the price of gasoline. Analysts are divided on what they believe will happen next, primarily because of the unpredictability that has emerged in international politics. A withdrawal of Russian forces from Ukraine would have an immediate and significant impact on market pricing, as would any relaxation of Western sanctions imposed on Iran and Venezuela. An escalation on the part of Russia would have the opposite effect.

Many people expected that the price of electricity would go up much farther than it has. However, China has implemented stringent lockdowns in Shanghai and other locations to halt the spread of the coronavirus. As a result, energy demand in the country that imports the most petroleum has dramatically decreased.

A shift in the Chinese government's stance could lead to a rise in pricing. But this might change if producers in places like the United States, Canada, South America, and the Middle East all decide to increase their output simultaneously.

It is anticipated that Russia's production, which has accounted for approximately 10 percent of the world's oil supplies in the most recent years, will continue to drop.

However, the nation has successfully found new customers for its energy in the form of China and India. Because of this, Middle Eastern countries are now exporting a greater quantity of oil to Europe while simultaneously decreasing the amount of oil they sell to Asia.

Experts just released a report at Citi claiming that big cuts in Russian output are expected "are overblown." According to the analysts, Russia might reroute up to 900,000 barrels of oil per day that it exports to Europe via tankers either away from Europe or nations within Europe that cannot switch to other suppliers.

Another report published this week by ESAI Energy, a business that does research and analysis on the global energy market, predicted that after completing summertime refinery maintenance, production levels will soar in the United States, Europe, the Middle East, and India. In addition, China is trying to increase its refined fuel sales, including gasoline, diesel, and other fuel types.

According to Sarah Emerson, president of the ESAI, "These supply increases will mitigate summertime price rises at the pump."

Hurricanes represent another unknown factor that could significantly impact the upward trend of oil and gasoline prices this summer. The refineries and pipelines that run along the coast of the Gulf of Mexico are vulnerable to destruction from major storms, and the government forecasters are predicting an "above normal" hurricane season.

Executives in the oil sector have frequently stated that extremely high prices are the solution to the problem of high pricing. They require customers to purchase less fuel or upgrade to vehicles with greater fuel efficiency. However, it does not appear that drivers are reducing their use or making any other significant changes - at least not yet.

Even though analysts anticipate an increase in gasoline sales over the summer, some motorists may alter their plans if prices continue to climb significantly higher. According to energy professionals, there are some indications that the demand for gasoline may be leveling off or possibly slightly decreasing, at least during the weekdays. This is the case just for weekdays. According to figures released by the Energy Department in May, sales of gasoline appeared to have declined by more than 2 percent when compared to the same time period the previous year. However, the government only tracks the amount of fuel supplied by refiners, merchants, and blenders—not the amount sold at retail to customers at the pump.

A recent study conducted by the American Hotel and Lodging Association of 2,210 adults found that sixty percent of respondents indicated they were likely to take more vacations this year compared to the previous year. However, 82% of respondents also responded that the price of gasoline would influence where they traveled.

According to Chip Rogers, president of the group, "the pandemic has instilled in most people a deeper respect for travel," This is reflected in the preparations that Americans are making to go out and about this summer.

Sales of electric and hybrid vehicles are on the rise. However, shortages of parts have limited the availability of all new cars, and some new models of electric and hybrid vehicles have waiting lists that are several months long. In addition, it has been challenging for people to upgrade to automobiles with better gas mileage.

The rapid decline in the price of energy that occurred due to the epidemic was perhaps the only positive effect that the pandemic had on consumers while the global economy struggled. However, due to oil prices falling to levels not seen in decades, international oil companies significantly reduced their capital expenditures.

As soon as it became clear that demand would increase throughout the previous year, oil companies rushed to rehire workers and restart drilling operations. However, many executives in the oil industry have been hesitant to invest a significant amount of money in new wells out of worry that prices may fall before the new wells begin production, which would leave them with substantial losses and further debts. As a direct consequence of this, huge energy corporations are allocating a substantial portion of their rapidly expanding profits toward paying dividends and purchasing their own company's shares.


                       Millions of Memorial Day travelers prepare to hit the road amid record gas prices l

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