Gas prices in America have largely spiked in the past few years, going from about $2.17 per gallon in 2020 to up to an average of $4.34 today. In California, it’s even higher at $5.79 a gallon in the San Francisco Bay Area. This is in-part due to Russia’s invasion of the Ukraine, but another driving factor is that the United States economy is in recovery from the pandemic. When Russia invaded Ukraine, gas prices spiked 80 cents – which is more than half the increase we have seen. This is because President Joe Biden stopped importing gasoline from Russia in an attempt to stand with Ukraine during this war without deploying troops.
Demand destruction is when customers change their behavior due to high prices or restricted supply. Most people need to use gasoline to get to their job or school, but some people have opted for more cost-effective forms of transportation to attempt to save on gas. Some of these options include riding a bike, using public transportation, or carpooling with friends or neighbors. Because of this, the demand destruction for gasoline is actively changing as people change their driving habits. This has caused a sit-still in gas prices.
So, what does this mean? Gas prices are at a sit-still right now because of the changes some people have made, causing demand to lower in the slightest. President Biden has come forward and talked about this issue, offering a solution. His idea was to acknowledge the U.S. oil companies that are making the highest profits they have made in years and ask them to invest more money into oil production and technologies needed for this process. The cost to produce a barrel of oil is approximately $100 now and could get up to $200 if they must speed up production.
Another solution that President Biden put into action is releasing 1 million barrels per day for the next six months from the Strategic Petroleum Reserve in an attempt to be a “bridge” until things are under control again. The Strategic Petroleum Reserve (SPR) is run by the Office of Fossil Energy and Carbon Management (FECM), and their job is to research, develop, and demonstrate advancing technologies with the goal of meeting climate goals and minimizing environmental impacts of fossil fuel use. Releasing over 180 million barrels of oil in six months is going to put a dent into the work that they have been putting in to avoid fossil fuel overuse. Once this oil is released, they will restock these barrels and have them saved in case of another crisis.
President Biden has been working alongside allied countries around the world in efforts of releasing tens of millions of additional barrels into the market. He is working towards fixing an immediate crisis, which could cause trouble in the future, near or far. He is making approximately $3.2 million available to provide payment for working-class families to be able to pay for oil in their homes. This is a risk that needs to be taken into consideration, because it can damage the economy if money keeps being thrown around. Another risk to watch out for is overworking oil rigs, and running out of oil altogether.