One month after Russia invaded Ukraine, Americans paid 20% more on average for regular unleaded gasoline. But the war in Ukraine is not the only thing affecting energy prices. Inflation has been increasing for months, and supply chain issues still affect the economy. With that larger view, how much of the increase in oil and gas prices can be attributed to the conflict between Russia and Ukraine?
What causes gas prices to rise or fall?
Crude oil costs are the biggest factor in gasoline prices. When crude oil prices increase, gasoline prices increase, as well. The price of a barrel of crude oil depends primarily on supply in the market. When major oil producers create more supply, the cost of crude tends to drop. When there are disruptions to oil supply or infrastructure, such as the Russian invasion of Ukraine, crude oil prices can rise, taking gas prices with them.
During the first year of the COVID-19 pandemic, there was a steep decline in demand for oil and gas products. Lower demand led to more oil than was needed, causing the price of a barrel of oil to become negative. A negative price for crude oil meant oil producers would pay someone to hold on to oil. Energy companies and oil-rich nations adjusted to the situation and reduced oil and gas production in 2020, according to data from the Energy Information Administration.
Recently, the US placed economic sanctions on Russia because of the Ukraine conflict. One of the sanctions was a ban on Russian energy imports. Russia accounted for about 8% of oil and gas imports to the US in 2021. On March 8, the US banned imports of Russian oil, liquified natural gas, and coal. A reduced supply of crude oil in the global market would typically cause a rise in crude oil and gasoline prices.
Have crude oil and gas prices gone up since the war started?
As of March 15, the average price for a barrel of oil was $96.44. That price is about 36% higher than before the Russian invasion began. But the recent increase is not a new phenomenon. The cost of crude oil has mostly risen since November 2020.
Oil prices are typically a leading indicator of gas prices. If oil prices rise, gas prices will likely go up a few weeks later or vice versa.
As of March 21, the average price for regular unleaded gasoline was $3.88 a gallon, a slight decrease from the week before. The price of gasoline in the US hasn’t been this high since July 2014. Gas prices went up 20% since the start of the Ukraine conflict. Prices increased by 3% since the US imposed sanctions on Russian energy imports.
The price of gasoline started rising months before the recent conflict. Gas prices are about 41% higher today than March of last year. Compared with March 2019, before the pandemic, gas prices are about 49% higher now. Many factors contributed to the rise in gas prices, such as supply chain issues, inflation pressures, and the global market expecting the disruptions of the invasion of Ukraine.
Gas prices are higher than in recent years but not at record highs. Since 2001, the highest average cost for a gallon of regular unleaded gasoline was $5.10 on July 14, 2008.
Is the price of electricity affected by the war in Ukraine?
There has been limited data available on the price of electricity since the war in Ukraine began. Data from the Bureau of Labor Statistics shows the average cost of electricity in February of this year was about 0.148 cents per kilowatt-hour. The February 2022 average is about the same as a year ago. It's also about the same as in February 2019, before the pandemic.
The price of electricity in the US is less volatile than oil and gas. Since 2012, the cost of electricity ranged from a low of 13.6 cents to about 16.4 cents per kilowatt-hour. There's a wide range of sources for electricity in the US, many of which don't rely on crude oil or other petroleum products such as natural gas. Coal-fired power plants and renewable energy sources such as wind, solar or hydroelectric power aren't as affected by war and supply chain issues.
US nuclear plants rely on imported uranium to function. About 16% of uranium imported to the US comes from Russia. Trade agreements limit Russian imports of uranium to 20% in the US. The most recent government data on uranium prices are from 2020, long before the current conflict began. Some members of Congress have called for uranium to be added to the list of Russian energy products banned in the US.