Gas Prices Are Up, But Why?

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Posted June 26, 2022

As members of the electrical wholesale industry, we don’t have to look too far to see the impact of high gas prices on our businesses. Higher fuel expenses for transporting goods are finding their way into the costs of the products and services we rely on to operate — not to mention, elevated prices at the pump when filling-up our personal vehicles.

How did we get here?

In the first quarter of 2020, the global impact of the COVID 19 pandemic drove gas prices below $1.80 a gallon when quarantines, canceled travel, and economic uncertainty around the world slashed consumer demand for refined fuels. Stockpiles everywhere surged to capacity and oil companies responded by shuttering production projects and furloughing workers. Refineries followed suit with corporate planners even deciding to close some long-standing refining facilities permanently. Others canceled plans for refinery expansions and improvements. These strategic responses from the energy industry succeeded in bringing supply levels in line with lower pandemic-level demand. As a byproduct of this, these energy industry moves reduced refining capacity and set up a business environment with a higher pricing structure.   *Full disclosure: this very blog post will likely mention gas prices in an outdated context as global energy markets operate in a state of flux.

Since April 2020, global gas prices have been surging as society returns to pre-pandemic levels of energy demand. Recently, the average price for regular unleaded surged above $5 a gallon. Energy companies are seeing record profits from these high prices and are recouping some of the significant losses they had during the pandemic. While it’s frustrating as a consumer to pay more at the pump, Oil & Gas companies are in business to make money in a global economy. Like it or not, they’re beholden to shareholders, not us consumers.

In addition to these strategic decisions to reduce production and refining capacity, geopolitical unrest from the Russian war in Ukraine has also rocked the energy industry. Under normal conditions, Russia is a significant producer/supplier of oil & gas and helps fuel much of Europe and Asia. With wartime sanctions from Europe and beyond, the global energy pool is further depleted of supply, pushing prices upward at a time when much of the world was poised for a post-pandemic recovery in energy demand.

Where do we go from here?

Most industry Analysts agree that there are no quick fixes. Removing global sanctions on Russian oil would help reduced prices by bringing supply back online but would also help fund Russia’s military initiative in Ukraine. Pivoting to other countries like Saudi Arabia, Venezuela, or Iran for crude production could help fill the gap but these sources come with their own set of geopolitical issues. Domestically, calls to open up drilling on federal lands and resume pipeline projects wouldn’t contribute to relief at the pump for several years. Refinery projects in the Middle East and Asia are slated to come online soon and help meet some of the supply shortages. Most other solutions provided by economists are on the demand side of the equation with calls for consumers to be more efficient and use less energy.

As your supply chain partner, Distributor Wire & Cable (DWC) will continue to look for every opportunity to increase efficiencies and keep operating costs low for electrical distributors in this inflationary business climate. With fast response times, smart logistics solutions, and great service, DWC is focused on helping our customers save time and lower costs.

Do you have any tips for saving at the pump during the Summer travel season? Please share in the comments below.