Fuel prices spike amid Ukraine crisis, climbing near $5 a gallon in some markets

Keywords Economy / Gas Prices

Americans are paying nearly a dollar more for a gallon of gas—to roughly $5 in some markets—than they did last year as the growing threat of war in Ukraine moved oil prices higher.

The U.S. average for regular unleaded gasoline hit $3.53 gallon on Wednesday, according to AAA. That’s 21 cents higher than last month and a hefty jump from the $2.65 recorded a year ago.

Oil prices climbed as the Russia-Ukraine crisis played out, pushing them within striking distance of $100 a barrel. They’ve eased slightly, with Brent crude, the international benchmark, trading Wednesday at roughly $97 a barrel and West Texas Intermediate, the U.S. benchmark, hovering above $92. But both are up about 40% from their early December low points.

Analysts say any further aggression on the part of Russia could attract more sanctions from the United States and Europe, something that could disrupt Europe’s energy supply and send price shocks across the globe. In an address Tuesday, President Joe Biden warned that sanctions would probably affect U.S. consumers.

“Defending freedom will have costs for us as well here at home. We need to be honest about that,” Biden said. “But as we do this, I’m going to take robust action to make sure the pain of our sanctions is targeted at the Russian economy and not ours.”

The most expensive gasoline is found in California, according to AAA, where the state average is $4.74 a gallon. While the number is slightly higher in the largest metro areas—$4.75 a gallon in Los Angeles and $4.90 in San Francisco—the cost in Northern California’s Humboldt County was within a penny of $5, according to GasBuddy.

Rounding out the 10 most expensive locations, according to AAA: Hawaii ($4.51), Oregon ($3.98), Washington state ($3.98), Nevada ($3.95), Alaska ($3.85), New York ($3.75), Pennsylvania ($3.73), Washington, D.C., ($3.72) and Arizona ($3.71).

Prices in the Indianapolis area ranged from $3.24 to $3.49 per gallon on Wednesday, with prices skewing higher in Hamilton County.

Although markets have typically shrugged off geopolitical tensions, the ongoing standoff on Ukraine’s border has roiled markets the past month. Russia is responsible for about 10% of the world’s oil supply, on par with the United States and Saudi Arabia.

On Monday, Russian President Vladimir Putin signed decrees ordering military forces into two separatist regions of Ukraine for “peacekeeping” purposes as Moscow recognized the two regions’ independence. The move came after a buildup of troops and weaponry near Russia’s border with Ukraine. Biden has referred to the recent troop movements as “the beginning of a Russian invasion” in Ukraine.

A full-scale invasion could damage important pipelines connecting Russia to Europe, even if they are not specifically targeted, Raymond James analyst Pavel Molchanov told The Washington Post on Tuesday. It could also bring broad-based and harsh sanctions that affect Russia’s energy industry far beyond the initial phases of conflict, Molchanov said.

“It’s expected that sanctions on Russia would lead to a retaliation by its government, whereby gas supplies are cut to Europe—Russia is Germany’s major energy supplier—leading to another supply shock that would ripple through global energy markets,” said Kyle Roda, a market analyst with the foreign exchange trading company IG.

Western powers have already begun placing sanctions on Russia, including shutting down a planned $11 billion Nord Stream 2 gas pipeline between Russia and Germany. The Biden administration has imposed a “first round” of sanctions targeting Russian banks and wealthy individuals. Those initial measures include sanctions on the company responsible for Nord Stream 2, a subsidiary of the Kremlin-controlled Gazprom company.

Policymakers could exert other levers to counterbalance any oil shortages, but analysts warn that no single country could replace the volume of oil Russia ships to Europe. The White House and congressional Democrats have considered pausing a federal gas tax of roughly 18 cents per gallon, for example.

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