‘Not going to be a good summer’: Why gas prices are still high

Your Money

(NewsNation) — American consumers tired of being gouged at the gas pump were given a glimmer of hope earlier this week when the price of oil dropped back below $100 per barrel.

Even President Joe Biden took notice, tweeting, “Oil prices are decreasing, gas prices should too.”

As gas prices have soared to record-high levels in recent days, Americans are eager for some relief when filling up their tanks.

The national average for a gallon of gas on Wednesday topped out at $4.305, according to AAA.

So why are gas prices still so high and when can consumers expect to see prices drop?

It boils down to supply and demand. 

Normally fuel prices rise in spring and summer as demand increases and Americans drive and fly more.

Gasoline prices have been rising in tandem with oil prices since spring 2020 because demand has grown faster than worldwide production as economies try to shake off the pandemic.

More people are driving and flying, and businesses are returning to pre-pandemic levels of activity, leading to more energy consumption, which pushes prices higher.

The slide in oil prices took some pressure off the inflation sweeping the globe, with a barrel of U.S. crude falling below $100 per barrel after touching $130 last week.

But “oil companies don’t set the market prices; people do, by filling up their tanks,” said Patrick De Haan, gas analyst for GasBuddy, which tracks gasoline prices around the U.S.

The price of oil is set on the world market. Even the leading producers — the United States, Saudi Arabia and Russia — don’t get to set the price, although they might try by adjusting production up or down, a process that takes time even when it works.

U.S. production dropped sharply in 2020 because the pandemic crushed demand, causing producers to idle some of their wells rather than sell their oil too cheaply.

“Stations lost their shirts on the way up, so the drop will be slow — but has already started,” De Haan tweeted, saying he was seeing a “slow decline” in prices at the pump.

There’s a lag between changes in oil prices and changes in prices at the pump, and that lag is even slower when prices come down.

“It always seems like the prices at the pump move higher a lot faster than moving lower,” Doug Shupe with AAA said.

When the price of oil starts to rise, you’ll see gas prices rise a few days later, as stations pass on that hike as quickly as possible to avoid losing money. A big spike in crude oil prices is typically followed by a gas price spike three to five days later, De Haan explained.

When crude oil prices start to fall, gas stations might not be in as big a rush to cut prices.

Shupe said gas stations already bought at a higher price the gas they now have — so it will take time before we finally see some relief.

According to GasBuddy spokesperson Nicole Petersen, there’s still a big incentive for gas stations to cut prices, though — to steal away customers from their competitors.

Nonetheless, “it’s not going to be a good summer for motorists,” De Haan said.

The Associated Press and Reuters contributed to this report.

© 1998 - 2022 Nexstar Media Inc. | All Rights Reserved.

Trending on NewsNation

Elections 2022

More Elections 2022