The cost of gasoline is on the rise. What’s the cause, and what’s the solution?
Supply and Demand: A Fundamental Aspect of Capitalism
One of the main causes of high gas prices is the concept of supply and demand. At the beginning of the COVID-19 pandemic, local and state governments set restrictions in place that led to people spending less of their time driving. This translated directly to lower demand for oil, directly evidenced by the fact that during this period, oil actually went below $0. If you’re wondering how that’s possible, it costs money to store oil.
Donald Trump Had Nothing to Do With the Drop in Price
Another important fact that will become important later is that Donald Trump had nothing to do with any of this. If you can remember back to 2020, Trump was actually against these restrictions. And whether you agree or disagree with the restrictions, it was states and local governments that ended up bringing gas prices to an incredibly low level during that period.
Mid and Late 2020, Gas Prices Steadily Rise
As everyone grew bored of the restrictions, and state and local governments began to relax the restrictions, gas prices began to rise again. This was due to increased demand because people were now traveling to and from work once again, and people were spending more of their time outside. These rising gas prices were not Donald Trump’s fault. They were based entirely on the fact that demand was heightening and major oil-producing nations and companies were finding it difficult to source workers to shore up production to meet demand. When production cannot meet demand, prices rise.
2021 and the Steady Rise in Price
In 2021, restrictions really started getting lifted. That meant more people out on the roads going from place to place and buying more and more goods. More food, more entertainment products, more beer, more cars, more everything. That meant more and more semis transporting these goods to get them on the shelves, so demand for gasoline wasn’t just being driven by consumers, but an entire economy roaring back to life. This, along with inflation, which I wrote about here, caused gas prices to steadily rise. And we almost certainly aren’t out of the woods yet.
2022, and the Russo-Ukranian War
With oil companies like BP and Shell leaving their Russian investments amidst the invasion of Ukraine, oil prices are slated to continue to rise ever higher. This, alongside the economic sanctions that include several Russian banks being excluded from SWIFT, an unprecedented move, are almost certainly going to isolate their economy from the rest of this world. Senators in the United States have also made moves to completely ban Russian oil in the United States, although Biden has spoken out against the move. If this movement were to succeed, we might actually see a president having a direct effect on the price of gas. As the invasion is ongoing, and sanctions are still in flux, it remains to be seen just how high prices go, but you should almost certainly expect record highs.