Unveiling the Mystery: The Real Causes of High Gas Prices

Welcome back to We're Talking Money. I'm Dustin Hocken, wealth advisor here at OmniStar Financial Group, and today we have a great show for you. Got Spell Carr, para planner here at OmniStar, but not only that, Spell is one of the brightest young gentlemen that I know, especially when it comes to economics. Really excited to have you on the show.

Thanks for having me today, Dustin. I'm excited to be here, and today we're going to be talking about gas prices and how do they correlate to the oil market. So the first step in all this is making sense of the gas prices and understanding the oil market. Let's start with WTI and what that means. So WTI stands for West Texas Intermediate and is the primary benchmark for oil in North America. So this tells us what the price per barrel of oil is, and it's used as a leading indicator for us to determine what prices at the pump might look like.

So you may be thinking, where is WTI today? So today crude oil is about 80 a barrel, but that's today, and I think it's important to look at what the historical prices have been over, say, the past few years. I think there's some alarming statistics that we all should be aware of. From April 2020 to June of 2022, prices increased 594. From April 2020 to November of 2022, the price per barrel of WTI crude has increased 410.

So what this graph tells us was that there was a major disruption in supply chain and there was, is an increase in demand. So why did this happen? So there were multiple factors at play. April 2020, that's COVID. Less people working, less output, less production, meaning there's a decrease in supply. Decrease in supply means increase in price. Makes sense.

The second factor was the Russian Ukraine war that broke out February of 2022. When Russia invaded Ukraine, President Biden signed an executive order banning all Russian imported oil. The United States' number one import from Russia was, you guessed it, oil. So that furthered the strain on the United States' supply. And the third factor that we're considering, the halting of the construction of the Excel pipeline. So President Biden signed another executive order halting construction on the pipeline, and that further exasperated supply issues. So Dustin, what can we expect from here?

We expect the Fed to continue to raise interest rates throughout 2023. These are so far away from their two percent inflation target. Now, the sentiment from Jerome Powell and his team is they're going to do whatever it takes to get to that inflation number. With inflation under control, or at least hopefully somewhat slowing, we expect to see prices start to decline, which will save you money at the pump. According to USA Today, the price of regular unleaded gas in 2023 is expected to be 349. Spell and I have no idea where they received their information, but it must be true because it's on the internet.

Where did you read that?

Everything on the internet is true.

On the internet.

The reason why prices are expected to drop in 2023 is because demand is expected to drop. So with the slowing economy, partially due to rising interest rates like we talked about, the need for oil production will decrease as well. In summary, we saw a spike in the price per barrel of oil over the last few years, but it's starting to moderate, meaning that hopefully you end up with more money in your pocket.

We hope this is helpful and useful information. Please like, share, subscribe, all that good stuff. It really does make a difference for our page, so we really appreciate it. Stay tuned for the next episode, and we'll talk to you soon.