Gasoline is a commodity that is widely traded around the world. It had recently increased in price and eclipsed its all-time high in 2008 when the stock market and mortgage came down crashing. It is common to see commodities’ value rising when the equity market having economic assets is crashing down.
However, what causes the gas prices to increase so high? The price tends to move in a particular direction when there is a significant increase in supply and demand. If the supply is significantly higher than the demand, the market will enter into recession or into a bear market. If the demand is higher than the supply significantly, the market will enter into the mark-up phase and remain bullish until some change in the supply and demand happens.
The Cause For Sudden Price Hike
There are three hypotheses for the recent hike in gas prices. The first one is the Keystone XL pipeline cancellation. Canada is one of the largest crude oil exporters and the largest exporter of crude oil to the United States. A Canadian oil transport company named TC Energy Corp working alongside the Government of Alabama, has recently failed to establish the pipeline that is supposed to transport a considerable amount of crude oil.
If the pipeline wasn’t canceled, it would have transported 830,000 barrels worth of crude oil every day. The pipeline is connected to the USA. Since it is the largest supplier of foreign crude oil to the States, some believe that it might have caused a disruption in the supply and demand chain. Cutting the supply will increase the prices. Also, the alternative for pipeline transportation is transporting the barrels through rails which is very expensive and less efficient.
However, the Keystone XL pipeline doesn’t really have a significant impact on the recent price hike as the US itself is the largest crude oil producer in the world. So let us move on to the next possibility.
Covid 19 Pandemic
During the 2020 covid pandemic, the supply of almost all commodities has been hugely affected. This might have led to an increase in gas prices. However, the gas prices back then were normal, and no price hikes were seen.
But why? The supply of gasoline might have been cut off, but the need for people to go out has also been significantly down. In fact, the majority of the governments have imposed strict restrictions on the public not to get out unless it is a necessity. This kept the prices under control. So, what might be the real reason?
Russia Ukraine War
We are aware that Russian President Putin has launched a full-scale invasion of Ukraine. Being the third largest exporter of crude oil, Russia getting into a full-scale war led to huge confusion. Afraid of huge disruption in the supply chain, countries have rushed to import oil from Russia. This caused a massive demand for crude oil. So, the war between the two countries has led to the recent price hike of gasoline.