Why Were Gas Prices High in 2008? What to Expect in 2022

While global crude oil prices surged in 2022 after Russia invaded Ukraine, they're still below their 2008 highs. The gas prices that consumers pay at the pump have surpassed the 2008 highs.

While most people know what’s driving gas prices in 2022, many are wondering what happened to gas prices in 2008 and why they were so high that year. Also, why is there a disconnect between global crude oil and gasoline prices?

Gas prices rose gradually between 2002 and 2007. Multiple factors contributed to the rise in gas prices. First and foremost, the global GDP saw a strong expansion between 2003 and 2007. For four consecutive years until 2007, the global GDP growth was 4 percent or higher.

The growth was driven by populous countries like China and India. The oil consumption in these countries spiked due to an increase in disposable incomes, which led to a sharp increase in car sales and oil demand.

Like all commodities, oil prices are a function of demand and supply. Global crude oil production was somewhat stagnant during the period and increased by only about 1.7 percent between 2004 and 2007, according to data compiled by Statista.

This led to fears that the world was headed toward an oil shortage. Newspaper stories in 2008 featured headlines on how the world would soon run out of fossil fuels, especially crude oil.

Also, there was frenzied trading in commodities during that period. Many blame speculative trading activity for the rise in oil and gas prices between 2002 and 2007. That said, there was a rise in all commodities during the period led by strong global growth.

Another factor worth considering is the fall in the U.S. dollar against other major currencies between 2003 and 2008. A weaker dollar is usually positive for commodities like oil. Traders also bet on commodities as a hedge against the weakening U.S. dollar.

The tensions in the Middle East were also high after the Iraq war began in 2003. There were tensions in Nigeria including a pipeline blast that killed many people. The tensions in the Middle East also contributed to high gas prices. While there are talks of a “perfect storm” in global supply chains in 2022, global oil and gas markets faced a similar situation in 2008, which led to an increase in gas prices across the world.

If you're wondering why gas prices have surged to record highs, surpassing 2008 levels, even though crude oil is still below the 2008 highs, you can blame the increase in taxes including the carbon tax imposed by some states. Some U.S. states have started to suspend the gas tax to provide relief to consumers while many are calling upon the Biden administration to also suspend the federal gas tax.

After hitting their all-time highs, global crude oil prices tumbled in the second half of 2008 as the Global Financial Crisis pushed the global economy into a recession. Just like a booming global economy lifts gas prices as well as demand, prices come crashing down in a recessionary environment.

Many would recall that WTI futures momentarily turned negative in April 2020 as the COVID-19 pandemic caused a slump in global oil demand.

Many economists are predicting a U.S. recession in 2022. The Fed has embarked on an aggressive tightening and is laser-focused on taming multi-decade high inflation even at the cost of sacrificing some growth. The gradual slowdown in the global economy combined with a rise in global interest rates should help bring down gas prices.

However, a major fall in gas prices would need something substantive from the supply side. With countries globally looking to replace Russian oil and gas, we would need incremental supplies from other countries to meet the shortfall. The world might need to choose the “lesser evil” between Russia, Iran, and Venezuela to increase global crude oil supplies and restore normalcy in global energy markets.