- Gas prices spiked in June 2022, reaching a national average of $5.00 per gallon.
- Prices have eased in the second half of the year, as a barrel of crude oil stands at close to the price it was in January.
- Consumers, countries, and businesses are all impacted by higher gas prices. See detailed lists below.
Gas prices have been in the headlines frequently since the cost soared in the first half of the year. In June, the national average hit $5 per gallon. Some parts of the country even saw prices of over $6 per gallon.
The good news is that prices have declined during the year’s second half. Here is a look at gas price trends in 2022 and who wins vs. loses with higher gas prices.
Review of gas prices in 2022
Gas prices have experienced wild swings up and down since the beginning of 2022. The price per barrel of oil was $76.08 on the first trading day of 2022, only to spike to $123.70 a barrel by March 8, 2022. The average price of a gallon of gas shot up immediately in response.
Gasoline is a commodity that’s subject to the feather theory. The price spikes quickly but takes a while to fall back to previously established levels. This means the daily gas price stays higher for longer and is more susceptible to further price increases when an adverse event happens.
Global, national, and local events all put pressure on the average price of a gallon of gasoline. Everything from the Russia-Ukraine conflict to local refineries going partially offline for various reasons impacts the cost of gas.
Here’s a look at some of the influencing factors for 2022.
European countries reliant on Russian gasoline supplies panicked immediately after Russia began bombing Ukraine. The affected countries quickly turned to other fuel supply sources, putting pressure on the world’s oil reserves.
As a result, the normal distribution of oil was disrupted and caused prices to spike across the globe.
In October 2022, OPEC cut its output by two million barrels a day with the claim of a weakening global economy due to interest rate hikes. Less oil supply drives up prices unless demand also comes down.
This news drove the price of oil back above $90 per barrel. However, this spike was short-lived.
Releases From the Strategic Reserve
The Biden administration responded to high gas prices by releasing 165 million barrels from the strategic petroleum reserves. This supply increase helped bring gas prices down in the second half of the year.
In October, some U.S. refineries shut down for maintenance, causing oil prices to spike. In some cases, the maintenance was routinely scheduled work that needed to be completed. But in other instances, refineries broke and needed repair.
Further compounding the issue was the transition from the summer blend fuel to the winter blend, temporarily putting refineries offline.
Why diesel gas prices are spiking
While gas prices are high, diesel prices are even higher. This is partly due to the conflict between Russia and Ukraine and the reduced refining capacity in the U.S. over the last few years.
Since diesel fuel and heating oil are very similar, a cold snap in the northern U.S. could cause prices to spike higher than the record of just over $5.70 per gallon back in June.
The high cost of diesel gas impacts everyone since trucks and ships use it to power their fleet. Additionally, much of the heavy construction equipment also use diesel gas. These businesses will increase their prices to offset the rise in diesel fuel costs.
Winners of higher gas prices
Many players in the oil industry benefited from their tactics to restrict the oil supply to consumers. Their profits soared at the expense of the consumer’s wallet and put into question the reasoning for the price increases.
Here are some of the winners of higher gas prices.
Sanctions were put on Russia quickly after it initiated military action against Ukraine, but that didn’t stop the sale of oil to other countries. Russia benefited from the increase in oil prices and saw record profits.
Oil companies across the board reported record profits from the sale of gasoline.
Phillips 66 earned $5.4 billion and $3.1 billion in operating cash flow. BP posted $8.2 billion in profits and put $2.5 billion of that towards share buybacks. Marathon Petroleum saw a net income of $817 million in the third quarter.
While profits were record-breaking in many cases, the comparisons to the previous year’s profits are skewed. This is because there was much less demand for gasoline as nations worldwide were either in lockdowns or working from home due to the pandemic.
It’s estimated that OPEC will earn $842 billion from oil exports in 2022. This represents a 50% increase in profits over 2021. The reduction in daily output helped inflate the cost of oil and boost the profits of OPEC members.
Losers of Higher Gas Prices
Not everyone benefited from higher gas prices, highlighting how the decisions made by a few countries have an outsized impact on the cost of a barrel of oil.
Those who have been adversely impacted by gas prices include the following.
Consumers got a double whammy from the higher gas prices in the form of a higher cost per gallon of gas and higher prices for just about every product they purchase. The average cost to fill up a tank of gas almost doubled, while the cost of daily and weekly purchases also rose.
Merchants factor in the cost of product delivery to their stores and add it to the price of the goods. When almost every item purchased by consumers goes up rapidly in price, it makes it harder for the consumer to anticipate and adjust in a reasonable amount of time.
The spike in gas prices made it more expensive to get to work, increased the cost of groceries, and made it harder to justify discretionary purchases. This depleted savings cushions that consumers built during the pandemic and increased credit card usage when buying goods.
Retailers lost because consumers had less money to spend on discretionary items. Transportation prices for goods increased due to the spike in gasoline prices, forcing retailers to charge more per item and eat into their profitability.
While retailers managed to make profits during the worst of the oil price spikes, recovering what was lost is difficult as consumers resist higher product prices even when economic conditions are normal.
Another issue retailers are dealing with is storing excess inventory that would be sold during a typical economic environment. Many retailers had to warehouse their products and pay for the rentals. They are now faced with selling the items at a marginal profit or losing money on sales to clear inventory and eliminate the storage cost.
Because of higher gas prices, many shipping companies had to raise their rates. Their profit margin was squeezed if rates could not be raised quickly enough.
In many cases, rates are agreed to months in advance. Consequently, when gas prices spike, the shipping companies have to take the loss.
The only solution is to raise new shipment rates to offset the losses. Sadly, the problem is that if prices get too burdensome, some companies may start shipping less to save money, hurting shipping companies.
First responders aren’t what first people think of when gas prices spike, but these people are impacted. For starters, both police officers and EMTs might try to solve more issues over the phone as opposed to driving to the scene.
Plus, in more rural areas, driving to emergencies will be more costly as residents live far apart and potentially far away from hospitals.
Furthermore, higher prices eat into the budgets of these departments, meaning either less money for new equipment and training or the need to raise taxes on residents in the coming year.
High gas prices also hurt the overall economy. When people have to spend more money on gas, this leaves less money to spend on other things.
With reduced spending on discretionary items, the stores that sell these items might need to lay off workers to survive. In some cases, higher fuel costs could put them out of business if margins were already thin.
Since the U.S. economy is mostly consumer-spending based, when spending slows, so does the economy. This could prolong a recession or make it worse.
While gas prices have fluctuated significantly for much of the year, the good news is that they have returned close to where they started the year. While it will take time for the lower costs to filter through the economy, it will ease some of the pain most people feel from higher prices.
Moving forward, gas prices will be influenced by the ongoing conflict between Russia and Ukraine and consumer demand. One analyst thinks oil will be over $100 per barrel in 2023, making it an interesting option to add to your portfolio.
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