NASHVILLE, Tenn. (WTVF) — Why are gas prices remaining so high?
We posed that question to two industry experts — a spokesperson for AAA Tennessee and a supply chain management professor at Middle Tennessee State University. They both agree this is a complicated problem with an equally complex answer.
Supply and Demand
"It’s really a supply and demand issue," said professor Richard Tarpey at MTSU.
The supply of gasoline went way down during the worst of the pandemic in 2020 and 2021 because the demand just wasn't there.
"Nobody was going anywhere. Nobody was traveling. During that time, of course, oil companies — they ramped down their production," said Tarpey.
But then, as the pandemic started to lift, the roles reversed. Demand shot way up but the supply of available gasoline was left empty.
"It takes a long time to start production again, so when you idle an oil well, it takes a while to start pumping that well again. And of course drilling new wells — that takes a lot of time as well," said Tarpey.
Dr. Tarpey says there are multiple reasons why supply is still limited:
1) Oil-producing countries apart of OPEC are enjoying the big profits so they won't be incentivized to increase their supply.
2) The United States and other countries stopped buying Russian oil, which makes up 10% of the world's oil after they invaded Ukraine.
3) President Biden is trying to prioritize green energy.
"The administration canceled the Keystone XL pipeline that would have delivered 800,000 barrels of oil a day to refineries down in Texas. So this particular administration is just not favorable to oil and fossil fuels, and that’s also going to scrimp demand as well," said Tarpey.
Other reasons for high gas prices
Megan Cooper, a spokesperson for AAA Tennessee, says gas prices are also high because refineries are in the process of transitioning from the winter blend of gasoline to the summer blend. That usually costs on average 5-10 cents more per gallon, and those costs are passed on to the consumer.
Dr. Tarpey says it also costs more money for gas companies to transport the fuel across the country, given the high price of diesel fuel. That cost is also usually transferred to the customer.
Are high prices here to stay?
"Over the next couple of months, Tennesseans can definitely expect gas prices to remain high," said Cooper.
Cooper says usually gas prices drop back down in the Fall once the summer travel season comes to an end, but this year may not be a normal year.
"If the market conditions persist throughout the summer and into the fall, it’s very likely we’re still going to be seeing higher gas prices at the end of the year," said Cooper.
"All indicators are that we’re going to be in the $4-5 dollar range for quite a while now," said Dr. Tarpey.
