Heading into the Memorial Day weekend, the U.S. average retail price of regular gasoline was $4.59 per gallon on May 23, the highest inflation-adjusted price since 2012 and the fourth-highest price on record.
The U.S. Energy Information Administration reported that on a nominal basis, it is the all-time highest price for gasoline in our weekly Gasoline and Diesel Fuel Update, which dates back to 1990. The high price of gasoline is currently driven by several factors, including the price of crude oil, the effects of Russia’s full-scale invasion of Ukraine, and U.S. gasoline demand growth outpacing refinery runs, resulting in large gasoline inventory draws.
The price of Brent crude oil, the largest component of the price of gasoline, has been rising for two years since hitting a low of $19 per barrel on April 21, 2020, as petroleum demand increased faster than production. Global petroleum production growth has been limited; several OPEC member countries have been unable to increase production in line with previously agreed targets. In the United States, several years of relatively low returns to investors have led some oil companies to prioritize debt reduction, dividend increases, and merger and acquisition opportunities in lieu of aggressive production growth.
In a survey from the Federal Reserve Bank of Dallas published on March 23, 2022, 59% of executives cited investor pressure to maintain capital discipline as the primary reason they would restrain production growth despite high oil prices. U.S. energy producers also face labor, material, and equipment shortages, further contributing to slow U.S. crude oil production growth throughout 2021 and into 2022.
At the time of Russia’s full-scale invasion of Ukraine, global petroleum supply and demand balances were already relatively tight, limiting the market’s ability to absorb the potential loss of Russia’s crude oil volumes (including volumes lost due to sanctions). Heightened geopolitical risks have increased oil prices further. From February 23 (the day before Russia’s full-scale invasion of Ukraine began) to May 24, the price of the Brent front-month futures contract increased by $17/b to $110/b.
Demand for gasoline in the United States (measured as product supplied) increased from a low of 5.9 million barrels per day (b/d) in April 2020, early in the COVID-19 pandemic, to 8.6 million b/d in February 2022, the latest monthly data available. Although gasoline demand has not returned to 2019 (pre-pandemic) levels, demand has been within 10% of 2019 levels since March 2021 (Figure 2). 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.