The idea of paying $5 a gallon for gas scares most Americans — at least the ones who don’t live in California, where AAA reports that the price per gallon for gas currently sits at $5.07. The $5 threshold seems like a big number especially when you look at what a gallon of gas cost in 2019, the year before the pandemic.
“U.S. regular retail gasoline prices averaged $2.60 per gallon (gal) in 2019, 11 cents/gal (4%) lower than in 2018. Gasoline prices rose steadily during the first quarter of the year, rising from $2.24 on January 7 to $2.90/gal on May 6, before gradually declining through the rest of the year,” according to the U.S. Energy Information Administration. “Because the cost of crude oil accounts for about 52% of retail gasoline’s final cost, the price of gasoline generally follows movements in crude oil prices, which followed a similar price path during 2019.”
Crude oil prices have, of course, been rising and they could climb even higher due to Russia’s invasion of Ukraine. That’s something many Americans worry about — at least those of us who don’t drive electric cars — because it could become a reality sooner rather than later.
Russia is the third largest supplier of oil in the world, after the U.S. and Saudi Arabia. It produces 12% of the world’s oil supply, including 8% of the U.S.’s supply, says Phillip Braun, professor of finance at Northwestern’s Kellogg School of Management. “The market for oil is global, and the removal of Russia from the global supply chain has and will continue to push the price of oil up,” Braun says.
“It is hard to know how much higher gas prices will go, although they will go higher. The EU and the U.S. have left loopholes in the recent Russian sanctions to permit Russia to export some oil, but it is not clear how much. The release of strategic oil reserves around the world will only help a little. American consumers need to accept that rising gas prices are a necessary cost to help the Ukrainian people in the midst of their profound crisis,” he says.
How Much Would $5 a Gallon Gas Actually Cost Us?
The average American car gets just over 24 miles per gallon of gas, according to Energy.gov while the average U.S. driver drove 14,263 miles per year, according to Kelly Blue Book data. That number likely shrunk in 2020 and 2021 due to the pandemic, but assuming a return to normal, that’s a reasonable mileage figure to use.
If you use the 2019 average price per gallon of gas of $2.60 as well as the above averages, it cost the average American driver $1,545 in gas in 2019. That’s 14,263 miles divided by 24 miles per gallon multiplied by 2.60.
Should gas climb to $5 per gallon, the average amount spent per American per year would nearly double. Under that scenario, the average American would spend $2,971 per year on gas per year.
It’s not that simple, of course. If you drive a car that gets fewer miles per gallon, you obviously pay more. Drive a hybrid that doubles the average miles per gallon and you’re spending less than the 2019 number in 2022.
Gas Affects More Than Cars
The price of gas rising also leads to higher prices pretty much everywhere else. When everyone pays more for gas it costs more to get goods to stores. That’s something Walmart (WMT) – Get Walmart Inc. Report CEO Doug McMillon addressed during the company’s fourth-quarter earnings call where he made it clear that Walmart could manage around having to raise prices.
“We’re working closely with our suppliers to manage inflation, finding a few places where we can roll back prices. And we’re paying close attention to how we manage our opening price point items,” he said.
That’s something Walmart and maybe Amazon (AMZN) – Get Amazon.com, Inc. Report can do due to sheer scale but higher gas prices will raise costs for nearly every other retailer. That means Americans won’t just pay more at the pump, they’ll pay more for nearly everything they buy.
Gas prices are, of course, also relative.
“When inflation is factored in, today’s prices appear more modest. In today’s dollars, gas cost an average of $5.20 a gallon in June 2008, and more than $4 as recently as September 2014,” Pew Research reported.
That may seem like cold comfort to Americans who see the price of gas at numbers that seem high, even if they historically really aren’t.
“Gas prices are posted all over town on large signs – unlike, say, milk prices – and people typically buy gas on its own rather than as part of a larger shopping trip, making price changes more noticeable. And gas prices can and do swing sharply and unpredictably, in ways that can seem unconnected to the rest of the economy,” Pew’s Drew Desilver wrote.