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How Much Does Oil Affect Gas Prices?

by Carl Steward
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Aerial view of Oil and gas industry, refinery at sunset, factory and petrochemical plant.How Much Does Oil Affect Gas Prices?

Another week, another all-time high in gas prices. According to AAA, the average price of regular unleaded gas increased by a quarter in the previous week to a record $4.86 on Monday. It is up 59 cents from a month ago and $1.81 from a year ago.

After a week of gas price increases in practically every town, city, state, and territory imaginable, the more bad news is on the way.

Many states now charge more than $5 per gallon. California ($6.34), Nevada ($5.49), Hawaii ($5.47), Oregon ($5.41), Washington ($5.40), Illinois ($5.40), Alaska ($5.37), Washington, D.C. ($5.06), and Michigan ($5.05) are the top ten most expensive states for petrol.

Oil accounts for over half of the cost of a gallon of gas, and oil prices have remained near record highs since 2008, owing to a lack of supply and growing demand.

Oil producers have been sluggish in ramping up production after being burned in 2020 when businesses worldwide shut down and oil consumption plummeted. OPEC+ decided to increase oil production last week marginally. It may help keep oil prices in check, but it is unlikely to affect gas costs. Refining converts crude oil into things that we use every day.

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The Gas Industry Sees a Flurry of Megadeals as Prices Explode

Despite the galloping recession and falling gas prices, the U.S. economy has been on a recovery path for several months, and dealmaking tendencies reflect that. There were several renewable energy agreements in the utility industry during the first quarter of this year; which is not surprising. Gas is attempting a return. The megadeals were the acquisition of 60% of the U.K.’s National Grid’s gas and transmission business by a consortium of institutional investors and the addition of South Jersey Industries by Infrastructure Fund. The initial transaction was worth $10.5 billion. The second was worth $7.6 billion.

According to several projections, the United States is becoming the largest exporter of liquefied natural gas in terms of capacity by the end of this year. Its actual LNG exports set a record in 2021 and have been increasing this year, especially since Russia’s invasion of Ukraine.

It is naturally positive for the sector, encouraging additional mergers and acquisitions. The problem here is ensuring adequate primary natural gas output.

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What Now for Russia’s Oil and Gas Industry?

The energy sector has driven Russia’s economy for a long time; it which has a quarter of the world’s gas reserves and more than 5% of its crude oil reserves. The country’s isolation deepens as a result of the invasion of Ukraine; hence, the question now is what will happen to its most significant industry.

Key foreign partners BP, Shell, and ExxonMobil have announced leave plans, multinational oilfield service companies have pledged no further investment, and many consumers have begun to avoid Russian petroleum.

Gas has continued to flow to Europe, and oil production, while decreasing, has not stopped. Russia’s largest energy businesses can be traced back to the early 1990s and the fall of the Soviet Union; when the country’s oil and gas reserves, formerly the state’s sole property, were divided up.

Rosneft, a state-owned company, founded in 1993, has benefited from the Kremlin’s complete support as it has acquired the assets of competitors to become the country’s largest oil producer; accounting for 40% of crude output.

The second-largest, Lukoil agreed last month to buy Shell’s retail and lubricants business in Russia; it was created in 1991 from three state-owned enterprises by Vagit Alekperov, who was still a deputy minister at the time. Gazprom, privatized in 1992, dominates the world gas market; it generates 540 billion cubic meters of fuel last year, more than BP, Shell, Chevron, ExxonMobil, and Saudi Aramco combined.

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