US rising fuel prices: Why are gas and diesel prices so expensive?

Gas prices have exceeded four dollars a gallon in many states around the country for the first time in history. Prices have not reached the levels they are currently holding at since the 2008 when the financial crisis was wreaking havoc on economies all over the world.

What has caused the surge in prices?

As a major supplier of natural gas and petroleum, Russia’s invasion of Ukraine has impacted energy markets. Many countries are trying to reduce their dependence on Russia, but they cannot fill the gaps as quickly as many would like. Energy exports, including petroleum products and natural gas, are the lifeblood of the Russian economy. While the European Union has imposed sanctions on Russia, they have not gone near natural gas markets over fears that Russia could retaliate and leave the block very vulnerable. The US banned the import of Russian oil and natural gas in March as a response to the invasion. This was a viable option for the US because it is an energy producer not dependent on Russian resources.

Recently, prices for both clean and dirty oil tankers, the large shipping vessels that transport gasoline, diesel, and crude oil around the world, have been on the rise. To move around the globe, these vessels rely on oil, and as the price for that commodity increases, so does the service of transporting energy resources. The US Energy Information Administration (EIA) has reported that typically “tanker rates increase during periods of low petroleum demand, as onshore storage fills and demand for tankers as a source of flexible, floating storage increases.” This phenomenon was seen in 2020 when the covid-19 pandemic first began. Stuck at home, many people stopped moving around and consumption for gasoline, and thus crude oil more generally, dropped quite rapidly, leading to a collapse in demand for petroleum products.

The Russian invasion has had two significant impacts on the diesel market.

The first is related to the price in the cost of oil tankers and shipping, but this is not unique to diesel. However, in April, the second-largest state-owned Russian energy company, Rosneft, announced that they would cut diesel exports to zero. In part, the invasion of Ukraine has forced many European countries to increase their diesel imports from Russia to the US.

Why aren’t diesel prices cheaper in the US?

In the United States, diesel prices are on average $2.36 higher than they were a year ago. While in Europe, diesel is typically cheaper than regular gasoline, which is not the case in the US. The EIA explained this difference in price by showing that tax benefits that made gasoline more competitive in the market helped decrease demand for diesel starting in the early 2000s. The price of diesel is highly dependent on the price of crude oil as that cost has represented around fifty percent of “diesel fuel prices from 2000 through 2021.”