Here's why US gas prices are soaring even when we barely use Russian oil

Ever since Russia's invasion of Ukraine earlier this month, Americans have noticed that their gas prices have shot up drastically. However, many are confused as the United States consumes very little Russian oil. In fact, most of Russia's oil goes to countries in Europe and Asia. According to experts, nonetheless, the key is to analyze the global oil supply rather than just oil supplied to the US. The trade of commodities is done through a heavily interconnected network, and oil is no different. Therefore, the price of oil is actually determined through a complex and multilayered global market, CNN reports.

Presently, the issue at hand is that Russia is one of the world's largest suppliers. In December of last year alone, for instance, the Eurasian country was responsible for supplying nearly 8 million barrels of oil and other petroleum products to global markets. Notably, 5 million of those barrels of crude oil were utilized to produce gasoline (among other goods). Furthermore, very little of Russia's supply is imported by the US; we only received about 90,000 barrels of crude oil per day in December as per the most recent statistics from US government bodies. In all of 2021, by contrast, Europe received 60 percent of Russia's oil exports and China received 20 percent.

Nonetheless, as oil is traded through a global commodities market, it ultimately makes little difference who is most crunched by the lack of Russian oil: lowered supply affects all international prices regardless. As per the fundament demand and supply of economics, when there is limited supply of a good in high demand, prices rise. To elucidate for example, if Europe must now purchase oil from different suppliers such as countries in the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, due to lowered supply of Russian oil, the increase in demand for OPEC oil will drive its crude prices up. As is commonly known, the US is currently one of the OPEC's largest buyers.

The lack of supply of Russian oil is the result of a ban on the commodity and other Russian fuel imports to the US. While at first President Joe Biden exempted Russian oil and natural gas from the sanctions they levied, he reversed course on Tuesday. Other powerful nations plan to do the same. The United Kingdom for instance said it will phase out Russian oil imports by the end of the year, whereas countries in the European Union are in a tougher spot on this as they are far more dependent on Russian oil. Nevertheless, the formal ban did not affect prices much; there has been a de facto ban on Russian oil since the invasion began, with most of the country's supply sitting unsold.

There are several reasons for this. Oil traders are uncertain about trading with Russia at present, concerned about the ability to close deals given the sanctions on Russia's banking system or find tankers willing to go to Russian ports amid shipping dangers in the war zone. Therefore, the main type of oil that Russia exports into Europe is being sold at a major discount as no one seems to want to purchase it. According to data from JPMorgan, more than 4 million barrels per day of Russian oil have been effectively sidelined. As a result, oil traders are pricing oil as if Russian supply simply did not exist. Again, lower supply leads to higher prices.

At this point, some may have two questions. First, why are other countries not closing the supply gap? Experts point towards the pandemic. Since spring of 2020, when global stay-at-home orders were in place, demand for oil had slumped. In turn, oil even briefly traded at negative prices, with OPEC+ heavily cutting production to support prices. The organization delibarelty kept production targets low ever since, only gradually adding back production, even when demand for oil and gasoline bounced back sooner than expected. As Russia is a member of the OPEC+, there are no immediate plans to bump up production.

Second, why are US companies not increasing oil production? At 9.7 million barrels a day, Russia was the second-largest oil producer in the world in 2021. But the US still remains the number one spot at 10.2 million barrels a day. American companies do not abide by those OPEC-style, nationally mandated production targets. US oil producers simply cannot or will not fill the supply gap, so they can enjoy higher profits derived from increasing prices and demand. All in all, because oil and gas prices are tied to geopolitical events, the pandemic, drilling logistics, and so much more, prices may not stabilize any time soon. While US oil companies argue they are currently facing a shortage of staffers and specialized equipment, it ultimately adds up to average US gas prices above $4.33 a gallon as of Friday.