A day after Americans faced the highest costs they've ever seen at the pump, gas prices jumped once again and set a new all-time record on Wednesday, according to AAA. The national average now stands at $4.25 per gallon, the highest ever following Tuesday's record of $4.17 per gallon.
Before this week's record-setting prices, the previous high was $4.10 in July 2008, according to Bloomberg. (Adjusted for inflation, that remains the high for fuel prices.)
But gas prices vary widely across the nation, with drivers in California facing the highest costs with an average price on Wednesday of $5.57 per gallon. Meanwhile, drivers in some Southern and Midwestern states are still paying below $4 per gallon for gas, such as in Oklahoma, where the per-gallon average is about $3.79.
Gas prices have been pushed higher due to Russia's war in Ukraine, which has raised concerns that the conflict could disrupt global crude supplies. But the cost of gasoline was rising even before the conflict, which began late last month. As the nation rebounded from the pandemic and lockdowns eased, Americans ventured out more — to stores and returning to work — boosting gas consumption and leading to higher prices.
The spike in fuel prices has contributed to several months of stinging inflation, which now ranks as one of the top concerns of the American consumer. Almost one in three people are cutting back on driving, with a majority citing higher gas prices as the reason, according to a new survey from Morning Consult.
Why is gas so expensive?
U.S. gas prices, which plunged to an average of $1.94 per gallon in April of 2020 as the COVID-19 pandemic led to lockdowns, started rising sharply in the fall of that year as the U.S. economy rebounded. By December of 2021, gas had reached $3.40 per gallon, adding to the inflationary pressures touching everything from groceries to rent.
But oil and gas costs have continued to climb amid Russia's war in Ukraine, with prices exploding after Russia launched a major invasion on February 24. On Tuesday, President Biden announced a U.S. ban on Russian oil and gas imports, 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 about 5% on Tuesday to more than $129 a barrel.
"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."
When will gas prices fall?
Wall Street analysts are predicting that gasoline prices could stay elevated for the foreseeable future, yet there was some sign of relief on Wednesday: the price of the benchmark Brent crude oil fell 4.5% to about $122 a barrel.
That is "excellent news," noted Patrick De Haan of GasBuddy in a tweet on Wednesday morning.
However, he added, it's not a sure thing that consumers will see relief at the pump: "Oil might be down this morning, but markets are open — so this could change — and if it does stick until settlement this afternoon, then stations will see a tiny drop in replacement cost."
In other words, he said, "It will slow the rise, but they haven't even passed full increases along, so it won't drop."
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 higher U.S. shale oil production and greater output from OPEC members, among other developments, he noted.
And consumers could change their behavior due to high prices — such as cutting back on driving or switching to electric vehicles — which would lower demand for gas. That, in turn, could depress prices.
"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.