Pressure at the Pump: Will There Be a Gas Shortage Amid Higher Prices?

The ongoing Russia-Ukraine war has sent gas prices soaring across the globe, including in the U.S. Many consumers want to know if there will be a gas shortage.

Americans were paying more at the pump before Russia invaded Ukraine, but prices went even higher after the war started. The COVID-19 pandemic and the accompanying lockdowns depressed gas demand, which came roaring back when nobody expected it. Recently, the prices broke the all-time high record from 2008.

The average price of a gallon of gasoline hit $4.173 on March 8, which broke the previous record of $4.114 set in July 2008. The same day, President Joe Biden announced a ban on Russian energy imports.

Russia is the second-largest global oil producer and the ongoing war has resulted in many sanctions for the country. Since the global oil industry is interconnected, a disruption in Russia could impact the entire supply chain. Globally, consumers are worried about how the issues in Russia will impact the oil supply and prices.

Consumers in the U.S. are concerned that another gasoline shortage might be in the offing, which could lead to another spike in prices. However, there isn't a gas shortage right now. The U.S. has about 580 million barrels of oil in its reserves. Patrick De Haan, the head of petroleum analysis for GasBuddy agreed. He said, “There's no shortage, there's not disruption, there's no shortage at all.”

A temporary shortage has been magnified by bottlenecks in the supply chain and consumption returning to levels before the COVID-19 pandemic hit. If gas prices keep rising, the stalled U.S. oil production might become economical once again, which should help normalize the prices a bit.

Biden announced during his State of the Union speech that the U.S. and 30 other countries (that make up the International Energy Agency) have agreed to release 60 million barrels of oil from their strategic reserves. Out of this 30 million will come from the U.S. In November 2021, the U.S. released 50 million barrels from its strategic reserves.

Will releasing this oil will help reduce gas prices? After the release of the reserves in November 2021, the average price of gas dropped by 2 cents in the following days, according to the U.S. Energy Information and Administration. However, the prices went right back up after a few days. Therefore, the current dip into reserves might not have a sustainable impact on lowering the prices.

In the short term, oil prices are expected to remain elevated. However, if prices remain high for too long, U.S. oil and gas producers might get incentivized to increase domestic production. Michael Gapen, the managing director and head of economic research at Barclays, said, “We do believe that higher oil prices will lead to increased domestic energy production which could help offset higher oil prices or any potential U.S. embargo on imports of oil from Russia.”

Pinning the blame of higher prices and lower U.S. gas production on President Biden might not be entirely justified. Many people are also blaming him for his policies such as revoking the Keystone XL pipeline permit. The U.S. production hasn't changed much during his presidency. The key reasons for the rise in prices are rising demand and the Russia-Ukraine war.