Why Are Gas Prices Going Up 2021?

The cost of electricity was very cheap in the spring of 2020 when roadways and airports were almost vacant due to the Covid-19 outbreak.

Today, as the global economy reopens, energy demand has returned, but supply has simply not kept up. That is why US oil prices have risen by $120 from plummeting to a record low of $40 per barrel in April 2020. For the first time in almost seven years, US oil prices ended over $80 a barrel on Monday.

Crude rose 1.5% to $80.52 at the conclusion of the day. The last time oil closed over $80 was on October 31, 2014.

All of this is causing sticker shock for many Americans who are filling up at the pump during a time of year when gas prices generally fall. According to AAA, the national average price of gas touched a new seven-year high of $3.27 per gallon on Monday, up 7 cents in only one week. Since hitting a low of $1.77 in April 2020, the price of gas has almost quadrupled.

High gas prices will only worsen inflation, stress American families’ finances, and harm President Joe Biden’s electoral prospects.

Unfortunately, the global energy crisis may cause gasoline prices to rise much more.

Natural gas prices have risen so dramatically, particularly in Europe and Asia, that power plants and companies may increasingly rely on a cheaper fuel source for electricity: crude oil.

“It’s simply about keeping the lights on,” said Matt Smith, Kpler’s head oil analyst for the Americas. “This is effectively generating demand that would not normally exist,”

Is $100 oil on the horizon?

Citigroup raised its Brent oil projection for the fourth quarter to $85 per barrel, saying crude would likely touch $90 at times. The Wall Street bank noted, “price contagion this winter” as well as the predicted shift of power plants away from high-priced natural gas and toward oil.

Citi also warned that a “particularly cold winter” may leave Europe “out of gas” by February.

Oil has long been touted as a viable natural gas alternative, but until recently, it didn’t make economical sense. This is because natural gas costs have been very cheap for most of the last decade, making switching to oil uneconomical.

In Europe, meanwhile, natural gas prices have risen from less than $2 per million BTU last year to as high as $55 this autumn. That equates to $320 per barrel of oil.

Bank of America has warned that a harsh winter might increase oil demand by 500,000 barrels per day, pushing Brent crude beyond $100 per barrel. Because gas prices are based on Brent oil, this would result in an even greater sticker shock for American drivers.

China’s coal prices have reached new highs.

High natural gas costs aren’t the only factor at work here.

Chinese coal prices have reached all-time highs as a result of floods in northern China, which caused the closure of dozens of coal mines. Coal is still China’s primary source of energy, utilized for heating, electricity generation, and steel production. China is now experiencing power shortages, leading the government to limit energy during peak hours and some nations to halt manufacturing.

Against this context, gas prices in the United States have steadily risen, contributing to the inflationary pressures squeezing the economy.

According to GasBuddy’s director of petroleum analysis, Patrick De Haan, $3.30 gas prices are certainly in the future.

“I honestly don’t see a coordinated decline in pricing on the horizon,” De Haan added. “The market is becoming more volatile. The foundations are in place for this to continue.”

OPEC is in command.

While demand for oil is high, supply has simply not kept up.

Even when prices have risen, US oil output has been reluctant to recover from Covid. Many US oil corporations are wary about oversupplying the market again, and they are considerably more concerned with repaying funds to stockholders who have lost vast sums of money over the last decade.

Despite the White House’s requests for OPEC and its partners to drastically raise output, the organization has only steadily increased output since early 2020, when it was sidelined. For the time being, they are willing to let oil prices stay high.

The south’s price of gas rise

Drivers around the nation, including here in Memphis and the Mid-South, are being taken aback by rising gas costs. As the price of gasoline continues to soar, many of us are paying the highest prices in seven years.

Because oil prices are at a seven-year high, gas costs are taking a toll on people’s wallets.

“Right now, increased crude oil prices are forcing our gas prices up,” said Triple A spokesman Megan Cooper. “We’ve seen crude oil prices rise beyond $80 per barrel.”

Tennessee, Arkansas, and Mississippi have some of the lowest gas prices in the US, averaging little over $3 per gallon.

Drivers are still seeing the change. Michael Criddle had to pay $60 to fill up his tank last year. He’s now forking up $80.

“They’re going up, and there doesn’t appear to be much of a reason for it other than, in my view, we’re depending too much on foreign oil,” Criddle said.

Gas has jumped 6 cents per gallon

According to Triple A, the Tennessee gas price average increased by double digits week over week for the second week in a row. Tennessee’s average gas price is currently $3.12, which is 22 cents more than a month ago and $1.18 higher than a year ago.

“We still don’t have the most costly gas prices in the nation, and particularly for Memphis, you have some of the state’s lowest gas costs at the fourth cheapest metro,” Cooper said.

Memphis’ metro gas price average is presently $3.14, which is nine cents more than a week ago, 20 cents higher than a month ago, and $1.18 higher than a year ago.

Here are some basic Triple A facts:

  • 25% of Memphis gas stations offer prices that are less than $3.00.
  • The lowest 10% of pump prices are $2.92 for normal unleaded.
  • The most expensive 10% of pump prices are $3.46 for standard unleaded.
  • With a metro average of $3.14, Memphis is now the state’s fourth least costly metro.

Triple A suggests many strategies to save money and reduce the agony at the pump until prices might drop again.

“Price comparison shopping may really assist,” Cooper added. “And, when you’re there, some stations will give you a discount if you pay with cash rather than a credit or debit card, and there are a variety of fuel-saving schemes accessible to customers.”

Another tip: drivers should avoid purchasing premium gas unless it is needed, as specified on the gas tank door. Instead, many vehicles mention premium gas as “recommended,” implying that it is optional.

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Toshiko Osaka