Gasoline prices continue to rise sharply, with Connecticut trending higher than the national average. Now the conflict in Ukraine is expected to further push prices at the pump upward.
As of Thursday morning, the price of gasoline in Connecticut was $3.68 per gallon on average.
“That’s up 2 cents in the last week, 19 cents in the last month and 98 cents higher than it was a year ago today,” said Tracy Noble, with the American Automobile Association in Greater Hartford.
Gas prices are complicated and subject to a constellation of international market forces and, to a lesser extent, federal and state taxes.
But at the root of gas prices is one commodity: crude oil, driven by a basic tenet of economics – demand and supply.
“Crude oil is the basis of all pricing,” said Chris Herb, president of the Connecticut Energy Marketers Association, whose members own, operate and distribute gasoline at nearly 1,000 locations in Connecticut. “As crude oil rises, what you pay at the pump rises. As crude oil falls, the price goes with it.”
When the COVID-19 pandemic began, Herb said the demand for gas declined and crude oil prices fell. But as the pandemic wore on, the demand surged back, outpacing supply and resulting in price increases over the course of last year.
But there’s more to price than just demand and supply.
Herb said crude oil prices are also influenced by Wall Street investors who are watching as Russia attacks Ukraine.
“The traders will initially push that price up based on their perceived fear that there will be a supply interruption,” Herb said.
Russia was the world’s third-largest producer of petroleum in 2020, according to the U.S. Energy Information Administration.
As Russian troops launched a broad assault on Ukraine, stocks tumbled on Wall Street Thursday morning and the price of oil soared above $100 per barrel.
Ukraine’s leadership said Thursday that at least 40 people have been killed so far in what it called a “full-scale war” targeting the country from the east, north and south.
On Tuesday, the Biden administration launched the first of what could be an even tougher series of sanctions targeting Russia's overall economy and its military and civilian elites.
Several banks that the U.S. considers especially crucial to the Kremlin and Russia’s military were hit with sanctions, and their assets under U.S. jurisdiction were frozen.
But those sanctions could result in retaliation from Russia. In a televised address as the attack began, Russian President Vladimir Putin warned other countries that any attempt to interfere would “lead to consequences you have never seen in history.”
“One of the things is the possibility that Russia may withhold oil from the global market. If that’s the case, we could see crude oil prices increase even higher,” Noble said.
President Biden said Thursday afternoon that his administration is “closely monitoring energy supplies for any disruption.”
“We are actively working with countries around the world to elevate collective release from the strategic petroleum reserves of major energy consuming countries,” Biden said. “The United States will release additional barrels of oil as conditions warrant.”
In Connecticut, gas prices are further exacerbated by federal and state taxes, which Herb said account for more than 20% of the price paid at the pump.
Included in those taxes are three basic charges: a federal tax of 18.4 cents per gallon, the state excise tax of 25 cents per gallon, and the petroleum gross earnings tax, which is a percentage tax of the cost of wholesale gasoline. Herb said that’s about 24 to 25 cents per gallon right now.
“So in Connecticut, when you fill up, you’re paying 67, 68 cents of that cost – is just going to taxes,” Herb said.
Noble, with the American Automobile Association, said as more people fill up during an anticipated summertime driving surge, that, mixed with rising crude oil prices and more expensive “summer blend” fuels, could have ripple effects across the economy.
“It could be the perfect storm,” Noble pointed out. “And prices could push even higher.”
But Herb said he believes “supply and demand economics will always catch up.”
“High prices, we don’t like them – we don’t want to pay them at the pump – but what high prices do is they force producers to put more product out there for the simple fact that they can make more money,” Herb said. “When they start to put more product back on, prices correct.”
“What goes up will come down,” Herb said. “It’s just a matter of when, and that’s a crystal ball I don’t have.”
This story contains information from The Associated Press.
