Following Russia’s invasion of Ukraine and the subsequent sanctions on Russian oil, the price of crude oil rapidly climbed above $120 a barrel. Gasoline prices — which had already been climbing since bottoming out in April 2020 — rapidly followed.
For the week ending March 14, 2022, the Energy Information Administration (EIA) reported a weekly retail average gasoline prices across all grades of $4.41 a gallon. That was the highest weekly average ever reported by the EIA (but it isn’t adjusted for inflation). Previously the highest weekly average reported took place in July 2008, when crude oil prices reached nearly $150 a barrel.
However, since reaching $4.41/gal, the national average dropped to about $4.20/gal as oil prices pulled back to ~$100/bbl. Barring a new geopolitical event that impacts the oil markets, it seems likely that the price of gasoline will remain below that March peak for now.
That doesn’t mean we will see significant relief any time soon. Refiners are currently switching over to the more expensive summer blends. These blends are mandated to have lower vapor pressure to help minimize smog formation in the summer. But, they are more expensive to produce, and the supply of ingredients to produce summer gasoline is less than for winter gasoline.
This all coincides with peak driving season. That’s why we rarely see significant drops in the price of gasoline in the summer. The only thing I can imagine that could make this happen is if Russia withdraws from Ukraine in the near future and some of the sanctions on Russian oil are dropped.
In the slightly longer term, however, the situation looks a lot better. U.S. oil production continues to climb. This past week U.S. oil production reached 11.6 million BPD, up 1 million BPD from a year ago and up 600,000 BPD since January. If we can maintain that pace for another year, the U.S. will be back at record levels of oil production.
The number of rigs drilling for oil reached 552 this past week (source), which is up 210 rigs from a year ago. That represents a year-over-year increase of 61%, and is the highest level of drilling since the Covid-19 pandemic took hold in the U.S.
Taken altogether, these signs point to the likelihood of much lower gasoline prices later this year. But you are probably going to have wait until after summer.