We’re all tired of the impossibly high prices at the pump, but what can we do about them? During the debates, President Obama said that gas prices were cheap when he took office because the economy was at a standstill and now they’re going up because of his “robust” economic recovery.
Sorry, but I call Bullshit on that.
If that were true, during the Reagan years, gas would have tripled or quadrupled in price because the GDP grew on average 4.1% per year. Under Obama GDP is “growing” on average, 1% a year. So if 1% GDP growth increases gas prices by over 100%, from $1.78 when he took office to $3.67 per gallon now, under Reagan gas prices should have skyrocketed, yet they didn’t.
And gasoline prices are steadily on the rise.
Is it demand? Oil production?
Rumors about the demise of U.S. gasoline demand have been greatly exaggerated.
Until late 2013, most energy observers forecast the world’s most reliably gas-guzzling market to consume less fuel this year. What was once thought to be a structural decline in demand, however, has proven more durable than expected.
As the summer driving season nears, retail gas remains stubbornly lodged near $4 per gallon. According to the Energy Information Administration, gas prices rose for 12 straight weeks through late April, and were 20 cents a gallon higher than the same point last year.
So what gives?
“The world’s not swimming in crude or gasoline yet,” said Francisco Blanch, commodities strategist at Bank of America-Merrill Lynch, in an interview. “Despite all the crude and gasoline production in the U.S., international markets are not tagging along.”
International developments matter, analysts say, because gas prices are linked to internationally priced Brent crude. Turmoil in Ukraine and spotty supply from the perennially unstable Middle East has conspired to keep oil above $100 per barrel.
I see! It’s the rest of the world, if they’d just get their act together…
BofA-Merrill points out that domestic oil and gas production has driven gasoline imports to near zero, while the U.S. is churning out nearly 10 million barrels a day. Despite all this, there has been little relief at the pump due largely to factors outside America’s control.
The International Energy Agency said in its most recent report that OPEC will need to increase its own production this year to sate rising demand. Meanwhile, the energy watchdog said non-OPEC production is also falling short of expectations.
‘Shale boom may not be helping’
“In the U.S. and Canada, yes, there is a big shale revolution going on…but the rest of the world is not producing enough to feed itself,” said BofA’s Blanch. “That’s why oil prices abroad are elevated and why gasoline, which is pegged to oil prices, are so high.”
But never fear, the Feds are throwing us a bone.
The EIA expects crude oil prices to fall this year, which should keep a lid on gas prices. Still, the agency expects average gas prices to rise by 3 cents during the June—August period compared with the same quarter last year.
If I were you, I wouldn’t hold my breath…
Read more here.