Gas prices around the world have been rising in 2022 after Russia invaded Ukraine. In the U.S., the average gas prices have hit a new record high and crossed $5 per gallon. Gas prices in California have even surpassed $6.
Rising gas prices have also fuelled inflation. In May, the CPI rose at an annualized pace of 8.6 percent — the highest since 1981. When will gas prices peak in 2022 and are they headed towards $6 this year as some analysts predict?
Why is gas going up?
You can blame the rise in crude oil prices for rising gas prices in the U.S. Contrary to what some conspiracy theorists might propagate, gas prices are going up across the world.
The Biden administration finds its hands tied when it comes to controlling rising gas prices. President Joe Biden took the historic step of releasing oil from the strategic reserves. However, it didn't have much of an impact on global crude oil prices.
Rising oil prices are a windfall for energy companies.
Rising oil and gas prices have been a windfall for energy companies and their stock prices have surged in 2022. Warren Buffett has been betting on energy companies and has invested billions of dollars into Chevron and Occidental Petroleum in 2022. Oil and gas stocks are outperforming the wider markets in 2022, thanks to soaring energy prices.
Crude oil prices have been going up.
Gas prices might remain elevated for some more time. The Russia-Ukraine war is only escalating and Russia has been warning the West not to supply higher-range weapon systems to Ukraine. Crude oil prices and by their extension gas prices might not come down anytime soon.
When will gas prices peak?
In absolute terms, current crude oil prices are still below their 2008 price levels when prices almost reached $150 per barrel. Also, on an inflation-adjusted basis, crude oil prices in 2022 are significantly below the all-time high price levels.
Crude oil prices might rise towards their 2008 highs amid the current turmoil. Gas prices might not have peaked yet and a rise in crude oil prices would push them even higher.
However, crude oil prices should eventually peak in the second half of 2022 as a slowing global economy would lead to demand destruction. Over the long term, gas prices are expected to fall as the world transitions towards electric cars.
Gas prices could hit $6 per gallon.
If you are living in a state with high gas taxes, you might already be paying over $5.50 per gallon for gas. So far, California is the only state where gas prices have crossed $6. However, looking at the current macro environment, $6 average gas prices in the U.S. also look like a possibility.
As the summer driving season pushes up the demand for gas, prices are expected to rise even more. Natasha Kaneva, who heads commodity research at JPMorgan, believes average U.S. gas prices could rise to $6.20 per gallon by August.
Patrick DeHaan, the head of petroleum analysis at GasBuddy, doesn't think that gas prices are headed towards $6. He predicts that gas prices won't cross $5.50 nationally and peak around $5.25. DeHaan had a word of caution though and called the market “unhinged.”
Here are some future gas price predictions.
If crude oil prices head towards their 2008 highs in inflation-adjusted terms, gas prices could cross $6 per gallon nationally in the U.S. Russia has already weaponized its energy exports and could do it even more overtly as it tries to finish its invasion of Ukraine.
Any escalation in the Russia-Ukraine war would only put pressure on energy prices across the world. Consumers across the world might continue to pay the price for Russian President Vladimir Putin's belligerence.