Why are Gas Prices in America so High?

Unless you drive a Tesla, you have probably noticed the insanely high gas prices in America lately.

The war in Ukraine

Russia invading Ukraine shocked the world and the oil prices because Russia is quite a large producer of oil.

However, America is the largest producer of oil in the world followed by Saudi Arabia, and then followed by Russia in third place. Only about 8% of U.S. oil imports come from Russia. So why are gas prices in America soaring if we do not import much petroleum from Russia?

A shock to the supply and demand for oil anywhere in the world can cause a spike in other parts of the world. Oil is a global commodity so regardless of how we are doing in the United States we cannot change what is going on in other parts of the world.

Oil problems in America

The oil that the U.S. produces tends to be lighter and sweeter crude, which means they flow at a faster rate and contain less sulfur than most other varieties.

The problem is that many U.S. refineries were constructed many years ago with a different type of oil in mind. U.S. refineries perform best using heavy and sour crude, which we import from elsewhere.

When oil prices spike, the U.S. cannot just simply pump more crude to lower them, because the only way to significantly boost production is to drill more, which requires a lot of investment capital. Oil companies have shied away from spending their capital because of the demand crashes and personnel shortages during the Covid-19 pandemic.

For the time being, people all over the world are experiencing pain at gas stations. Unless, of course, you drive an electric vehicle (EV).

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