Nearly 35 million people were estimated to hit the roads this Memorial Day Weekend, providing another reminder about soaring gas prices and the impact that will have on drivers’ budgets.
That gas-pump pinch could only get tighter in America, now that European Union leaders have agreed to a ban that will wean Europe off 90% of Russian oil by the end of the year, say gas price experts.
“Agreement to ban export of Russian oil to the EU. This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine,” EU Council president Charles Michel wrote in a tweet late Monday.
“This sanctions package includes other hard-hitting measures: de-Swifting the largest Russian bank Sberbank, banning 3 more Russian state-owned broadcasters, and sanctioning individuals responsible for war crimes in Ukraine,” he added.
“The EU ban contributes to the trend of higher prices,” said Andrew Lipow, president of Lipow Oil Associates, a Houston, Texas-based energy industry consulting firm. “I fully expect over the next 10 days, gas prices will rise to $4.75 a gallon. $5 a gallon becomes an ever-increasing possibility.”
The near-complete oil import ban announced Monday is another coordinated economic sanction against Russia for its Ukrainian invasion now grinding past three months. The EU agreement will halt 90% of Russian oil imports to the EU by the end of 2022.
On Tuesday, AAA said the national average price for a gallon of gas was $4.62, another record-breaking price. The average prices in roughly 20 states exceed that price, AAA data shows.
The $5 mark can be a psychological price point when drivers start following through on gas-conserving steps, like carpools, clustered chores and generally driving less, past surveys have said.
So when is $5 national average gas arriving? It could be a matter of weeks, Patrick De Haan, head of petroleum analysis at GasBuddy, said Monday on Twitter. The EU ban announcement heightened the chance of $5 gas, De Haan said.
Last week, J.P. Morgan JPM, +0.33% analysts predicted national averages of $6 per gallon by the end of August. California drivers are already paying $6.16 a gallon on Tuesday, AAA data shows.
“As refineries scramble for alternative supplies, prices are going to rise,” Lipow said, noting that means refineries in America and Europe.
The question remains: How long can the American consumer withstand rising prices before scaling back demand?
Some aggregated traffic data suggest that there has not been a let up in demand and anecdotally, the high costs aren’t seriously phasing some summer plans. Yet some government data suggest cracks are appearing in consumer demand.
Lipow pointed four-week averages from the U.S. Energy Information Administration. At the end of April, the market saw 8.79 million barrels of finished gasoline supplied for drivers. That’s down from 8.94 million barrels of finished gasoline supplied a year ago at the same time.
The same dynamic applied for the four-week averages as of late May, when 8.84 million barrels of gas were supplied for drivers, compared to a year earlier when it was 9.09 million, the data showed.
“Weekly estimates indicate that gasoline demand from March through May 20, 2022, averaged about 6% less than 2019 levels, up significantly from April 2020 when it fell to 38% below 2019 levels,” the federal agency wrote last week.
“I think the demand destruction will only get worse as more stat reach the $5 threshold,” Lipow said.
Strained consumer finances are a serious matter, but the cost increases are linked with Russia’s violent invasion of Ukraine — a conflict that’s caused at least 6.8 million Ukrainians to flee the country, according to United Nations data. The UN says approximately 8 million people have been displaced within the country too.
President Joe Biden has previously called the gas price surge “Putin’s Price Hike” and he kept the finger pointed at Russian President Vladimir Putin in a Wall Street Journal op-ed published on Monday about his plans to fight inflation. He’s already announced his plans to release 180 million barrels of oil from the Strategic Petroleum Reserve through early fall.
“The price at the pump is elevated in large part because Russian oil, gas and refining capacity are off the market,” Biden wrote Monday. “We can’t let up on our global effort to punish Mr. Putin for what he’s done, and we must mitigate these effects for American consumers.”