The surge in gasoline prices is thanks, in large part, to the jump in oil prices. Russia’s invasion of Ukraine is the latest catalyst to push crude higher, but prices were already on the move ahead of the war.

Even before Covid, energy producers cut back on investment and less profitable projects under pressure from low prices and institutional shareholders demanding higher returns.

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 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 do so 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 remains firmly above $100. To put that number in context, at the beginning of 2022 a barrel of crude fetched $75, while at this time last year prices were closer to $63.

The rapid rise in oil and therefore fuel costs is causing a headache for the Biden administration, which has called on producers to pump more. Oil companies are reluctant to drill after pledging capital discipline to shareholders, and executives say that even if they wanted to pump more they simply can’t. They’re facing the same issues that are playing out across the economy, including labor shortages and rising prices for parts and raw materials, such as sand, which is key to fracking production.

Oil prices make up more than half of the ultimate cost for a gallon of gasoline, but it’s not the sole factor. Taxes, distribution and refining costs also influence prices. 

Constrained refining capacity is beginning to play a larger role. Refining is the key step that turns crude oil into the petroleum products consumers and businesses use daily. The amount of oil that refiners can process has fallen since the pandemic, especially in the Northeast.

Meanwhile, petroleum product exports from Russia are being hit by sanctions, leaving Europe looking for alternate suppliers. Refiners are running nearly at full capacity, and crack spreads — the difference between refiners’ cost of oil and the price at which they sell their products — for diesel are now at record levels. 

All of these are pushing gas prices higher.