According to the New York Times, geopolitical tensions and the growing gap between supply and demand have caused gasoline prices to increase.
Crude oil prices have risen more than 15% in January alone, with the global benchmark price surpassing $90/barrel for the first time in more than seven years, due to concerns about the Russia-Ukraine conflict.
According to the American Automobile Association (AAA), the average price of regular gasoline is quickly reaching $3.40/gallon, nearly $1 higher than a year ago.
In November, the Biden administration said it would release 50 million barrels of oil from national strategic reserves to ease consumer pressure, but the move did not make much difference.
Many energy analysts predict that oil prices could soon reach $100 a barrel, even as electric cars become more popular and the COVID-19 pandemic continues. Exxon Mobil and other oil companies that were considered an "endangered dragon" by some Wall Street analysts just a year ago are now thriving, earning their biggest profits in years.
Why is oil prices suddenly so high?
The pandemic reduced energy prices in 2020, even causing the US oil price index to fall below zero for the first time. However, prices have risen back faster and more than many analysts expected, largely due to supply not keeping up with demand.
Western oil companies, partly pressured by investors and environmental activists, are drilling less oil than before the pandemic to curb increased supply. Industry executives said they are trying not to make the same mistake in the past when they pumped too much oil at high prices, leading to price declines.
In other countries such as Ecuador, Kazakhstan and Libya, natural disasters and political instability have limited production in recent months.
"The unplanned shutdown has turned what was allegedly a turn to surplus into a deep production gap," said Louise Dickson, oil market analyst at Rystad Energy research and consulting firm.
In terms of demand, most of the world is learning how to deal with the pandemic, people are eager to shop and make trips. Worried about having to deal with an infectious virus, many people are choosing to drive instead of using public transport.
But the most immediate and key factor is geopolitics.
Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington, said the Russia-Ukraine tensions have " put the oil market in a miserable state."
Russia produces 10 million barrels of oil per day. The US will not suffer significant direct losses if Russian exports are suspended, as Russia only exports about 700,000 barrels/day to the US. This relatively modest amount could easily be replaced by oil from Canada and other countries.
But any disruption to Russian shipments transported through Ukraine, or sabotage of other pipelines in Northern Europe, would paralyze much of the continent and disrupt the global energy supply chain. That is because, traders say, the rest of the world is unlikely to replace Russian oil.
Even if Russian oil shipments are not interrupted, the US and its allies could impose sanctions or export controls on Russian companies, limiting access to their equipment, which could gradually reduce Russian production.
In addition, disruption of Russian natural gas exports to Europe could force some utilities to produce more electricity by burning oil, not gas. That will increase demand and prices worldwide.
What can the US and its allies do if Russian production is interrupted?
The US, Japan, European countries and even China could release more crude oil from their strategic oil reserves. Such moves can be helpful, especially if a crisis occurs in a short period of time. But reserves will not be enough if Russian oil supplies are interrupted for months or years.
Western oil companies that have pledged not to produce too much oil are likely to change their approach if Russia cannot or does not want to provide as much oil as it has. They will have great financial incentives - from rising oil prices - to drill more oil. But those businesses will take months to increase production.
What is OPEC doing?
President Joe Biden has urged the Organization of the Petroleum Exporting Countries (OPEC) to pump more oil, but some members have not reached monthly production quotas and some may not be able to increase production quickly. OPEC members and their allies, including Russia, have agreed to follow a relatively modest plan to increase production next month by 400,000 barrels/day.
In addition, if Russian supply suddenly decreases, the US is likely to put pressure on Saudi Arabia to increase independent production. Analysts say the kingdom has several million trunks of reserves that could be exploited in case of a crisis.
When will oil prices decrease?
Oil prices fluctuate cyclically, and there are several reasons why prices may fall in the next few months. The pandemic is far from over and China has closed several cities to prevent the spread of the virus, slowing the country's economy and energy demand. Russia and the West could reach an agreement - formal or informal - to prevent conflict in Ukraine.
And the US and its allies could restore the 2015 Iran nuclear deal that former President Donald Trump abandoned. Such an agreement would allow Iran to sell oil much easier than it is now. Analysts say Iran could export 1 million barrels or more per day if the nuclear deal is restored.
Finally, high prices can reduce oil demand enough for oil prices to fall. For example, one of the financial incentives for buying an electric car is that electricity tends to be cheaper than gasoline per kilometre. Electric car sales are growing rapidly in Europe, China and increasingly in the US.
