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U.S. gas prices surge to all-time high as oil costs soar

Biden bans Russian energy imports
Biden bans Russian energy imports 02:34

American drivers are now paying the most they've ever doled out for gasoline, with the national average reaching an all-time record of $4.17 per gallon, according to AAA. 

The record comes after the average price for gasoline topped $4 a gallon last week, with prices continuing to surge amid Russia's war on Ukraine. The previous all-time high for U.S. gas prices was $4.10 in July 2008, according to Bloomberg (Adjusted for inflation, that remains the high for fuel prices.)

Drivers in California are facing the highest costs, with the average price per gallon at $5.44. In Mono County in California, the typical cost of gas has jumped above $6, with the average price at the pump now at $6.02, AAA said. 

Other states with higher-than-average gas prices include:

  • Hawaii, $4.72 per gallon
  • Nevada, $4.67
  • Oregon, $4.59
  • Washington state, $4.55
  • Illinois, $4.43
  • New York $4.37
  • Connecticut, $4.36

Why is gas so expensive?

U.S. gas prices, which fell to an average of $1.94 per gallon in April of 2020 as the COVID-19 pandemic was taking hold, started rising sharply in the fall of that year as the U.S. economy rebounded and demand surged. By December of 2021, gas had jumped to $3.40, while the fiercest inflation in four decades pushed up the cost of everything from food to rent.

This year, oil and gas costs continued to climb after Russia massed troops on the Ukraine border. Prices exploded higher after Russia launched a major invasion on February 24 amid concerns that the conflict could disrupt global crude supplies and trigger economic sanctions.

"The military conflict between Russia and Ukraine has driven up crude oil prices over the last seven days by over 30%," analysts with investment bank UBS said in a report. "This is the second-largest one-week increase in crude oil over the last 30 years, driven by fears of a potential embargo of Russian oil supplies, which would have wide-ranging implications for oil producers, consumers and markets."

President Biden on Tuesday announced a U.S. ban on Russian oil and gas imports over the country's invasion of Ukraine, taking aim at Russian President Vladimir Putin's main revenue source as Russian forces continue to batter Ukrainian cities. Brent crude oil, the benchmark for oil prices, jumped on Tuesday about 5% to more than $129 a barrel.

Russia is a major exporter of crude oil, accounting for about 12% of the world's supply. Any disruption to those exports is likely to drive prices at the pump higher for consumers almost everywhere, experts said. 

Yet the U.S. is far less dependent on Russian oil than Europe. Last year, about 8% of U.S. oil imports came from Russia, while as of January almost no Russian oil came into the U.S, according to Troy Vincent, senior market analyst at DTN, a commodities research firm. 

When will gas prices fall?

The price of gas could decline later this year, according to David Kelly, chief global strategist at JPMorgan Funds in a research note. That would depend on greater U.S. shale oil production and greater output from OPEC members, among other developments, he noted. 

In another move that could eventually bring relief at the pump, Biden administration officials met this weekend with the government of Venezuela, one of the world's largest oil producers, as the U.S. and European countries seek energy sources other than Russia. The U.S. has had no formal diplomatic relations with Venezuela since 2019 because of the authoritarian rule of President Nicolás Maduro.

Still, Wall Street analysts said that adding more oil to global markets through stepped up production by  the U.S., Venezuela, Iran or OPEC is unlikely in the short term to significantly curb prices.

"Ultimately, prices may need to rise even higher in order to trigger demand destruction and bring supply and demand back in balance," UBS said.

Biden administration faces bipartisan push for Russian oil ban amid record-breaking gas prices 02:50

Rising gas prices could dampen consumer demand for gasoline, such as if they cut back driving or opt for electric vehicles. 

"Because of all of this, it is quite possible that oil prices will spike in the short run but then fade in the months ahead," Kelly noted. 

In the meantime, U.S. households are likely to feel the hit to their wallets. The average U.S. household spent $3,100 on gas in 2021, according to Yardeni Research. But the recent spike in gas could end up costing Americans as much as $2,000 more this year, the investment research firm estimated in a report.

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