Fuel is a problem for business and consumers — Why prices are so high

The surge in gasoline prices is impossible to miss and at the top of consumers’ minds as large billboards announce that gas now costs $4, or $5, and even above $6 a gallon in some places.

With prices at record highs, Americans are feeling the impact at the pump immediately. But higher fuel prices are a headwind for the wider economy too, beyond just consumers having less spending money. Rising fuel costs — especially diesel — means that anything transported on a truck, train or ship is affected. 

Energy costs are a major contributor to the decades-high inflation numbers showing up as prices for all manner of goods and services march higher.

“Energy, in a way, is the tail wagging the dog here,” Bob McNally, president at Rapidan Energy Group, said Wednesday on CNBC’s “Power Lunch.” 

“Diesel is really the economic fuel. It’s the lifeblood of the economy, transportation, power in some cases…so it really is embedded in economic activity and it’s filtered through so many goods and services.”

Then producers slashed output further during the throes of the pandemic, when the need for petroleum products fell off a cliff. People weren’t going anywhere and businesses were shuttered, so far less fuel was needed. Demand dropped so suddenly that West Texas Intermediate crude, the U.S. oil benchmark, briefly traded in negative territory. 

Economies have since reopened, manufacturing has revived, and people are driving and flying again. This led to a surge in demand, and an increasingly tight oil market beginning last fall. In November, President Joe Biden tapped the Strategic Petroleum Reserve in a coordinated effort with other nations, including India and Japan, in an effort to calm prices. But the relief was short lived.

Russia’s subsequent invasion of Ukraine at the end of February sent an already fragile energy market reeling.

U.S. oil shot to the highest level since 2008 on March 7, topping $130 per barrel. Russia is the largest oil and products exporter in the world, and the European Union relies on it for natural gas. While the U.S., Canada and others banned Russian oil imports shortly after the invasion, the European Union said it couldn’t without detrimental consequences.

Now, the bloc is trying to hammer out a sixth round of sanctions against Russia that includes oil, although Hungary is among those pushing back. 

Oil has since retreated from its post-invasion highs, but still remains firmly above $100. To…