Blog Post

Insight: The Energy Shock of Putin’s War

By: Thomas Holst

Note: The opinions expressed are those of the author alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.

Motor gasoline prices have been top of mind for Utah motorists since Putin’s war in Ukraine began in late February. The war is the primary factor boosting Utah’s regular unleaded prices from $3.80 per gallon in September 2021 to $5.25 per gallon in July 2022. 

Despite increased motor gasoline demand created by the 2022 summer driving season, Utah prices fell by $1.00 per gallon during July and August. [i] Why did gasoline prices drop and who gets the credit for this price drop?

Retail gasoline prices can be decomposed into various components, whose shares can change over time. As of July 2022, crude oil prices account for 54 percent of motor gasoline’s pump price (see Figure 1).

Figure 1. Price Components of Motor Gasoline

Data source: U.S. Energy Information Administration, Gasoline and Diesel Fuel Update, July 2022

After Russia invaded Ukraine, crude oil prices spiked up when the United States and European Union sanctioned Russian crude oil exports. However, crude oil prices have subsequently decreased because of global supply and demand factors.

Crude oil supply. The United States began selling crude oil from its Gulf Coast Strategic Petroleum Reserve (SPR) in May, placing roughly 1 MM barrels per day for six months into the global market. [ii] These released volumes place downward pressure on global crude oil prices.  The United States sells more SPR crude oil barrels than is produced by medium-sized OPEC countries such as Algeria or Angola.

Crude oil demand. China now imports less crude oil because its zero-COVID policy