Will oil prices go up?

Nobody can predict the future path of oil prices with certainty. A range of factors influence how oil trades, yet supply and demand remain the main drivers. When fears of economic slowdown, conflict, or similar shocks rise, oil prices can move sharply.

How oil prices translate to gas pump prices

The price you see at the gas pump reflects more than just crude oil. Also built in are the costs of refining, distribution through wholesalers, various taxes, and the margin your neighborhood station charges.

Crude oil is still the largest single driver of the final pump price, typically representing over half of each gallon’s cost. Spikes in oil prices tend to push gas prices higher in short order. But when oil prices decline, gas prices often ease down gradually, a behavior known as “rockets and feathers.”

The role of the U.S. Strategic Petroleum Reserve

In the event of an emergency, the U.S. maintains a stockpile of crude oil known as the Strategic Petroleum Reserve. Its main goal is to safeguard energy security when disasters strike—think sanctions, severe storm damage, or war. It can also do a lot to ease the pain of sudden price jumps when supply gets disrupted.

It’s not a permanent fix, as it’s more meant to provide immediate support for consumers and ensure critical parts of the economy like key industries, emergency services, public transportation, and so on can keep operating.

How oil and natural gas prices are linked

Both oil and natural gas play key roles as major sources of energy. A big change in oil prices can affect natural gas by proxy. If oil prices increase, some industries may swap natural gas for some segments of their operations where possible, increasing the demand for natural gas.

Historical performance of oil

Oil prices are often measured by two key benchmarks:

• Brent crude oil is the main global oil benchmark.
• West Texas Intermediate (WTI) is the main benchmark of North America.

Between the two, Brent is a better representation of global oil performance because it prices much of the world’s traded crude. It’s also often the best way to review historical oil trends. In fact, the U.S. Energy Information Administration now leans on Brent as its primary reference in its Annual Energy Outlook.

When you look at the Brent benchmark across multiple decades, you’ll see that oil has been anything but consistent. It has experienced spikes driven by wars and supply cuts, as well as crashes linked to global recessions and an oversupply (called a “glut”). For example:

• The early 1970s brought the first big oil shock when the Middle East cut exports and imposed an embargo on the U.S. and others during the Yom Kippur War.
• Prices dropped in the mid-1980s for reasons such as weaker demand and more non-OPEC oil producers entering the industry.
• Prices spiked again in 2008 with rising global demand, but soon crashed alongside the global financial crisis.
• During the 2020 COVID lockdown, oil demand collapsed like never before, bringing prices to under $20 per barrel.

In short, oil’s historical performance has been far from steady. It’s massively affected by wars, recessions, OPEC whims, evolving energy initiatives and policies, and much more.

Energy coverage from Fortune

Looking to stay up-to-date regarding the latest energy developments? Check out our recent coverage:

• Johns Hopkins economist Steve Hanke on why the UAE quit OPEC
• U.S. consumer confidence inches up even as the Iran war sends energy prices soaring
• Activists call surging oil and gas profits ‘horrifying’ as energy giants post huge profits

Frequently asked questions