Summer Squeeze: Why Gas Prices Are Going Up

As the country starts to reopen and travel restrictions begin to ease, summer travelers can expect to see a jump in the price of gas. According to AAA, the national gas price average is $3.09, the highest of the year, and it continues to rise. As we head into the Independence Day holiday weekend, AAA forecasts 43.6 million Americans will hit the road and they may be surprised to see how much it costs to fill the tank.

The Box sat down with Shaya Sheikh, Ph.D., associate professor of management and marketing studies in the School of Management, to find out what is driving this surge in prices, what it means for air travel, and if there is relief in sight.

Why are gas prices so high? Has the pandemic affected supply and demand?
As a general rule, gas price fluctuation has a direct relationship with the crude oil price. The primary reason for the early 2020s drop in crude oil prices was the pandemic. It made crude oil to be massively oversupplied. Since then, many countries, such as the United States and the United Kingdom, are gradually returning to normalcy, which drives up the demand. In fact, global demand for crude oil is recovering so rapidly that it has outpaced the forecasts made by the International Energy Agency. So, the restrictions that came with the pandemic, and then the relaxing of those restrictions, have been the main factor for the fluctuation in crude oil supply and demand and, as a result, the gas price. 

Was the shutdown of the Colonial Pipeline also a factor? What about the shortage of qualified fuel truck drivers?
Even though the Colonial Pipeline shortage had a temporary impact on the east coast’s gas price, its impact was mainly limited to the duration of the shutdown.

The shortage of tanker truck drivers needed to deliver the gas to stations, to some extent, has contributed to surging gas prices, and the pandemic just exacerbated the driver shortage.

Are gas prices higher today than they were in 2019? How do they compare to previous years, including 2020 at the height of the pandemic?
Overall, gas prices have not been this high since 2014. 

What is the Climate and Community Investment Act in New York state and how will it affect gas prices here?
The Climate and Community Investment Act (CCIA) is going to charge polluting industries a fee for emissions they produce. The collected fees will be spent on investments needed to meet emissions reduction targets. 

The CCIA and the proposed carbon tax could potentially raise the gas price. However, the impact on consumers is not comparable to the impact felt by the supply and demand disruption.

What is the carbon tax? How and why could it potentially raise gas prices?
A carbon tax puts a price on pollutants (including greenhouse emissions) in an effort to encourage people and businesses to produce less of them. A prime example of a polluting industry is oil refinery, where the carbon tax increases the production cost of gasoline and other derivatives of crude oil.

Airline travel prices are skyrocketing. Are gas/fuel price increases impacting that as well?
Even though the increase in fuel price is a contributing factor to the ticket price surge, the main driver for increasing air ticket prices lies on the surging demand and the difficulty for the supply side (e.g., available crews, captains, in-service planes) to catch up with the demand in a timely manner.

Slightly off topic, how will crude oil prices affect heating oil prices?
The cost of crude oil is one of the major components of heating oil prices. As the price of crude oil that is delivered to refineries goes up, the price of heating oil, which is a derivative of crude oil, follows suit. Other major components are the cost for refiners to produce heating oil and to distribute and deliver heating oil to consumers. 

Will the price of crude oil continue to go up?
While it is extremely difficult to forecast crude oil prices over the long term, we will most likely see the price continue to rise in the near future due to an increase in demand and the time needed for supply to catch up with the demand.

Is there relief in sight? Will consumers see prices go down any time soon?
It is unlikely that the price of gas significantly drops during this summer unless an unforeseen factor disrupts the demand once again.

This interview has been edited and condensed.