NEW YORK (CNN) For Ukraine, the year since the Russian invasion has been one of widespread death, destruction and displacement as the lives of millions were forever changed. Americans got off easy by comparison, with most not feeling the effects of the war until they were at the pump.
But the impact on Americans was far less than across Europe, where energy prices for driving and heating rose much higher. Still, Americans have paid a price for the war and the sanctions imposed on Russia by the United States and its allies after its invasion.
With Russia being one of the world’s largest oil exporters, the sanctions have rocked global energy markets, which set the price of oil.
US gas prices shot up between the day before the Russian invasion a year ago and a record high on March 14.
That peak was short-lived — the national average price of gasoline, as tracked by OPIS for AAA, fell steadily for 98 straight days, beginning right after that record was reached in June, through September 20th. On Friday, the one-year anniversary of the invasion, the national average was $3.39 a gallon, compared to $3.54 on the day the war began.
But despite the steady decline since that record high in June, US drivers spent $528 billion on gasoline last year, up $120 billion from 2021, according to OPIS. That equates to about $900 more per US household.
Last year’s total is almost double gas spending in 2020, as stay-at-home orders and massive job losses in the early months of the pandemic sent gas demand plummeting and prices plummeting. Even compared to before the 2019 pandemic, gas spending increased by $156 billion last year, or an average of $1,200 per household.
Why prices shot up and then fell
A number of factors have conspired to bring prices down steadily ever since. Now, a year after the start of the war, crude oil prices on world markets and retail prices for regular gas are below pre-war levels in most parts of the United States.
And forecasts indicate that they will remain so in the future. OPIS expects the median price to be around $3.45 throughout 2023 compared to $3.96 last year. Even some higher forecasters, like Goldman Sachs, are calling for a yearly average of $3.87 this year.
To understand why they are down, it is important to understand why they are up so much and so quickly.
Crude oil prices are determined on the global commodity markets. And to some extent, these markets overreacted to the onset of the war.
“The market reaction was due to uncertainty,” said oil analyst Andy Lipow. He said those who trade oil futures thought the world market would have to find a substitute for all Russian oil if there was no alternative.
But Russian oil supplies continued despite the sanctions, though diverted elsewhere. Instead of sending much of its oil and refined products to Europe, Russia sent them to countries like China, India and Turkey.
And the sanctions have never completely halted oil supplies to Europe, although a price cap capped supplies and the amount buyers in those countries would be willing to pay.
So the sanctions achieved the goal of reducing Russia’s revenues from oil sales. They have also caused global prices to retreat from the June high.
“There was an assumption that Russian production would be curtailed. But their production is almost as high as it was a year ago,” said Tom Kloza, global head of energy analysis at OPIS.
Additionally, in March, the United States and its allies announced they would begin releasing oil from their crude stockpiles such as the US Strategic Petroleum Reserve, which put pressure on prices.
The economic outlook also boosted oil prices
Oil is traded globally in US dollars, and the strong dollar, which benefited from historic Federal Reserve rate hikes, helped limit the impact of price increases on US consumers, even as drivers paying in other currencies had to spend a lot more.
Few things affect gas prices like a recession, or even fear of one. People who lose their jobs don’t have to commute and retire on discretionary items like travel. Consumption falls, followed by prices.
A prime example of this happened during the Great Recession 15 years ago. The average price for a gallon of regular gasoline hit a then-record $4.11 in early July 2008, according to OPIS data. Six months later, after the financial markets collapsed and massive job losses, it had fallen 61% to $1.62.
Rising fears of a global and US recession rocked markets in late 2022, pushing oil futures prices lower. Fears of a US recession have receded of late, with very strong reports on US job growth and retail sales, but they have not gone away – especially as the Fed is expected to continue raising interest rates.
While many of the restrictions on daily activities imposed during the pandemic have disappeared in the United States and Europe, lockdowns in China in late 2022 hurt global gasoline consumption and, in turn, global prices. China has since reopened, but whether it stays open remains to be seen.
Price below pre-war level
Until the end In November, the national median price for a regular gallon had fallen below the average of $3.53 on February 23, 2022, the day before the invasion. It has stayed below that level since then, although for the week leading up to Christmas it is a little above the post-invasion low of $3.10 a gallon. This is usually a period when the lowest pump prices of the year are recorded.
Of course, the national average may not have much to do with what the stations in your area are charging. There are big price differences, with western states, particularly California, paying much more due to a drop in refining capacity there and stricter environmental regulations.
“It’s easy to say that we won’t reach last year’s prices,” said Kloza. “It could be a year where California pays $6 and Texas pays $2.99.”