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Gas Prices Explained: Why There's Been So Much Pain at the Pump

As consumers scrambled to keep their tanks full, gas prices in some states surpassed a staggering $7 a gallon last month — the highest in U.S. history


On the West Coast, gas prices soared to an average $6.78 a gallon in California, Oregon, and Washington, while other states averaged $5.02 a gallon for regular unleaded gasoline. In parts of the U.S. and Canada, diesel prices reached nearly $10 a gallon. 


At the same time, the price of crude oil was trending downward from a peak in March as countries including the United States released strategic reserves. So why did gas prices continue to shoot up? It can be explained by something called the “crack spread.”


What Is the ‘Crack Spread’?


This term is used by oil refiners to explain the costs of removing impurities and processing oil into gasoline. Crack describes the process of breaking crude oil down into key components, while spread refers to the price difference between crude oil bought by refiners and the final products they sell to consumers.


Crack spreads have been significantly higher for diesel and other crude products in recent months — reaching over $50 a barrel, compared with two years ago when they averaged about $10.50 a barrel, according to Bloomberg.


Oil refiners were swamped with demand, and the result was a “bottleneck effect” where refiners could reap record profits.


Much of the increase in demand came from the European Union, which turned away from Russia as an energy source after the Russian invasion of Ukraine. In March, President Joe Biden announced plans to release about 180 million barrels of oil from the nation’s Strategic Petroleum Reserve, but gas prices only continued to climb.


Gasoline OutrageousPhoto credit: Michael D Page/istockphoto

Biden said the decision to dip into homegrown reserves would serve as a “wartime bridge” as oil production ramped back up in the U.S. and other countries.


“Together, our combined efforts will supply well over a million barrels a day. Nations (are) coming together to deny Putin the ability to weaponize his energy resources against American families as well as families and democracies around the world,” Biden said in March.


Finally, Some Reprieve?


Biden told reporters in June that U.S. consumers likely would continue paying high gas prices “for a while longer,” or for “as long as it takes, so Russia cannot, in fact, defeat Ukraine, and move beyond Ukraine.”


In recent weeks, gas prices have retrenched a bit — averaging $4.36 a gallon across the country as of July 25. The decrease comes as welcome news for those whose budgets were being overstretched, although prices remain high compared with the same period last year, when they averaged $3.16 a gallon, according to AAA.


For those residing in California, an annual gas tax increase, which went into effect July 1, raised the cost of gas in the state by an additional 3 cents a gallon. California’s tax rate now stands at 51 cents a gallon — the highest in the country.


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