As the United States economy is struggling to rise from its hibernation induced by the pandemic, businesses and consumers have experienced hiring challenges, product shortages, conflicting public health guidance, and other problems.
The country is now facing another familiar recovery foe –rising gasoline and oil prices.
According to CBC News last month, President Biden called for an investigation into the high prices of gasoline. At that time, the average gas price was about $3.17 a gallon around the US. The president said that the people to blame might be the pandemic profiteers.
The rapid price hike comes at a delicate time for the American economy, as it was already going through its fastest inflation in years amid resurgent supply chain bottlenecks and consumer activity. According to the New York Times, it can also lead to a political headache for the president as he fights to prove to the Americans that his policies are effective in helping the nation to regain its footing.
In their article for New York Times, Casselman and Krauss write that experts argue that the recent rise in oil prices is as a result of global geopolitical and economic forces rather than domestic policies.
There was a slump in global energy demand after the coronavirus pandemic hit, eventually forcing OPEC and its allies to lower production, preventing fall in prices. Although demand has started rebounding because of the resumption of economic activities, production is yet to keep pace.
CBS News also adds that Americans are driving more than they were a year ago, therefore increasing the demand of gas. The article reports that Americans are driving at almost 50% rates above the pre-pandemic level.
Gas is not immune to the supply chain challenges plaguing every product during the pandemic. Hackers and storms have destroyed the gasoline production and transport, with Hurricane Ida responsible for temporary closure of most oil production in various big refineries and the Gulf of Mexico. The hurricane follows a cyberattack that happened in May, taking out a major East Coast fuel pipeline for almost a week.
The low production resulting from OPEC and independent producers limiting their production of oil is also propping the gasoline prices. The prices are expected to fall in the coming months as driving reduces during winter, and the hurricane damages will have been repaired to bring the refining operations back online.
Gas prices remain a potent symbol of increasing prices when economists and consumers are anxious about inflation. Policymakers at the Federal Reserve expect the inflation increase to be short-lived.
Domestic oil production may rise in the coming months as rising demand and higher prices have pushed the lead companies in stepping up their drilling. However, any rebound will be gradual.
According to the energy department, the production will average 11.1 million barrels daily, rising to 11.8 million barrels daily in 2022.
Even with no domestic production surge, a lot of forecasters believe that the prices will soon fall. The members of OPEC generally agree that there need to be an increase in production, but disagree about the amount of increase needed.
The spread of new COVID-19 variants might also dampen the oil demand as some countries tighten or reimpose activity restrictions.