The COVID-19 pandemic was not only the deadliest worldwide epidemic in a century, but it also kickstarted the steepest global economic recession since the 1930s. This was contrasted by exceedingly high inflation rates and violent market volatility during much of 2021. One sector particularly affected by the ups and downs of demand and supply during the past two years is the energy sector; consumer gasoline prices have risen exponentially over the course of 2020-2022 for a variety of reasons. The most important part is that this trend is unlikely to reverse or even stop anytime in the near future
In order to understand how we got here, it is important to keep things in a historical perspective. The last time there was a serious crisis in oil supply across the world was in the late-1970s and early-1980s, in the immediate aftermath of the Iranian Revolution. Oil prices also rose steeply after the 2008 Financial Crash, but this rise was relatively short-lived. From the mid-2010s onwards, the extraordinary development of hydraulic fracturing (‘shale oil’) and the rise of renewable energy sources exerted a consistent downwards pressure on gas prices around the globe, especially for customers in the United States (the home of the most successful shale revolution in the world).
This trend reached its peak around the spring-summer of 2020, when the OPEC’s efforts to force Russian Federation into submission resulted in the lowest oil prices ever in history, with crude oil reaching negative figures at some places. We should remember that this was the situation less than two years ago. It is understandable, therefore, that the individual consumers will be hit particularly hard after oil prices started to rise again following the economic recovery of 2021.
While this rise was certainly inevitable, the U.S. federal government would seem to have completely failed at effectively regulating the inflationary pressure to reduce its toll on the average American household. After all, fuel prices have legitimately doubled almost everywhere in the U.S. over the past twelve months. In fact, gasoline prices rose almost 58 % last November alone, the steepest such rise in forty years.
Unfortunately, apart from this long-term trend in oil prices, the war in Ukraine has added yet another factor to the global rise in energy costs. Russia is after all the largest energy supplier to Europe, and one of the biggest oil producers in the world. The mere news of a U.S. ban on the import of Russia oil caused gasoline prices to skyrocket this week. In some counties in California, the price reached over $7 per gallon, up from roughly $2 a year ago. The incredible loss in supply owning to sanctions imposed upon Russia is unlikely to be effectively mitigated in the short term, and apart from subsidies and national oil reserve, it is not clear what the Biden Administration can really do to reduce the inflationary burden on the average consumers. The full political implications of this failure will probably become clear in the upcoming mid-term elections in November.