U.S. gasoline prices are at a four-year-high this year as a result of the higher price of oil which has reached a three-and-a-half-year high in recent weeks.
The increased pump prices are now eating into the disposable income of the average American household that will have a total of $440 less to spend this year on other goods and services because this money is expected to go for buying higher-priced gasoline.
The higher spending on gas could offset one-third of the gains from the tax cuts, with low- and middle-income families feeling the pinch much more than higher-income earners, according to S&P Global economists Beth Bovino and Satyam Panday.
“This would be tantamount to a tax increase for American households,” the economists wrote in a recent report, quoted by Bloomberg. “This is especially true for middle- to low-income Americans.”
The higher-income families, on the other hand, will be less affected by the increase in pump prices because spending on gasoline accounts for a smaller share of their total disposable income.
“The income tax cut is virtually compensating those who were hurt least from the oil-price change, which may result in even larger inequality,” according to Bovino and Panday.
Despite the higher spending on gasoline, however, the overall U.S. economy is now less oil-dependent than in the past, so oil prices in the $70s will have a more mitigated impact on economic growth than it would have in previous years, the S&P Global economists and Fed economists say. Related: Libya Stops Pumping Oil
For this year’s April–September driving season, the EIA expects U.S. regular gasoline retail prices to average $2.87/gallon (gal), up from an average of $2.41/gal last summer, mostly due to expectations of higher crude oil prices. According to the Short-Term Energy Outlook (STEO) from June, monthly average gasoline prices may have peaked in June at $2.92/gal and are expected to drop gradually to $2.84/gal in September.
For this year’s July 4 holiday, U.S. drivers will be paying the highest Independence Day average gas prices since 2014—at $2.90/gal, compared to $3.66/gal for July 4 in 2014, when oil prices were $100 a barrel, according to GasBuddy.
Although current national average gas prices are below the May peak of $2.98/gal, a price jump may be looming, due to OPEC’s announcement of a smaller-than-expected oil production increase, the U.S. push to have Iran oil exports down to “zero”, and significant U.S. crude oil stockpiles draws, GasBuddy says.
According to AAA, last week the United States saw the largest one-week reduction—9.9 million barrels—in crude inventories for the first summer driving season in five years. “If the decline in inventories continues and oil prices remain high, motorists could see a spike in gas prices later this summer despite the anticipated increase in production from OPEC and its partners,” AAA said last week.
Still, the higher oil prices now have a more muted impact on the U.S. economy than before, Dallas Fed President Robert S. Kaplan wrote in an essay last month. Related: Sanctions On Iran May Send Oil Prices Above $90 Next Year
Several factors have mitigated that impact over time. One is U.S. shale production—higher domestic oil production means that a larger share of the economy is helped by higher oil prices. Then, reduced crude oil imports benefit the U.S. trade balance. Finally, the U.S. economy is less oil-intensive now than in the past, because of higher fuel efficiency, other forms of energy substituting part of the oil dependence, and higher share of less-energy-intensive services sector as a share of the overall economy, Kaplan argues.
For example, in 1970, the U.S. consumed 1.1 barrels of oil for every $1,000 of gross domestic product (GDP). By 2017, only 0.4 barrels of oil were consumed for every $1,000 of GDP, the Dallas Fed president says.
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“Based on these various factors, it is the view of Dallas Fed economists that the negative impact of higher oil prices on GDP growth is likely to be more muted than in the past. It is our view that a 10 percent increase in the oil price should have a relatively modest negative impact on U.S. GDP growth. This negative impact should further diminish as the U.S. continues to grow its domestic oil production,” Kaplan writes.
By Tsvetana Paraskova for Oilprice.com
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To the low- and middle-income families, the higher spending on gas could offset
one-third of the gains from the tax cuts. This partly explains President Trump’s request to Saudi Arabia and OPEC to increase production to prevent oil prices from rising steeply otherwise they would undo the economic boost from his tax cuts ahead of the midterm elections in November this year and could lead to losses by his Republican party. The other reason is the impact on the US balance of payments from a rising oil-import bill of 7-8 million barrels a day (mbd).
Still, higher oil prices benefit the US economy hugely because of the following factors. One is that the US oil industry which employs 2% of the American work force has become very important to the US economy in terms of its earnings from the exports of crude oil and as well as LNG. Second, the US economy has become far less oil-dependent than in the past thus reducing the adverse impact of high oil prices.
And while higher oil prices may deprive American consumers of a bit of their disposable income, their overall economy benefits quite a lot.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Now the gas prices are up due to Obama's 8 yrs and we don't care. We're retired and drive for our entertainment only.
Gas prices can teach $10.00 per gallon and we still would vote to tax gas even higher.
Paybacks are an *itch.
Well, at least Obama got his backdoor Foreign Policy deal with Iran to bolster his legacy, Hillary Clinton got her $150 million from her Uranium One deal with Russia, and Hugo Chavez' family is now $4 Billion richer off the backs of their citizens...and we're all stuck with higher priced oil. So I guess that's something /snark
Under President Obama, the record gas price was reached the week of May 9, 2011 when gasoline averaged $3.965 per gallon. never a mention...that's over thirty five percent higher than today's average of $2.86.
No surprise that when an incompetent like Trump gets in office the uncertainty will drive prices back up.
Don't believe me? Just check the FACTS:
https://www.titlemax.com/discovery-center/planes-trains-and-automobiles/average-gas-prices-through-history/
"never mentioned" "never had a problem".
Google is your friend. You should go back and read the thousands of stories you missed about gas prices during Obama.
This too shall pass. MAGA
That being said, a federal tax increase was floated around a few months ago and Trump was quoted as favoring it to rebuild infrastructure. If 100% of the road taxes being collected were being spent on the roads, and it's not enough to get the job done, then perhaps we should look at the federal tax. However, I have a feeling that's not the case in most states. Here in California, our "leaders" spend perhaps only 50% of the collected road tax actually goes to the roads. The rest of the funds are robbed to pay for social programs and to bail out Calpers, the state public employees pension plan that has nearly $1 Trillion in unfunded liabilities.
You're a bit batty.
Higher prices induced capital investment, while Obama's stated goal was for energy prices to be as high as possible so people would use less and possibly pay more to invest in renewable systems that are not yet efficient & therefore have a very long return on investment.
America is much closer to being energy independent because of capitalism and hydraulic fracturing and that dynamic will only intensify as prices ease up.
The general American public benefits more than it suffers
Right now a lot of Americans own gas-guzzling automobiles and trucks.
The average person owns a used car because the prices went out of sight.
In the next three years the greed in the oil industry will destroy most of the industry itself.
The future belongs to those who can make transportation reasonably cheap.
A 3-4 year old electric car devalues up to 50 or more percent in 3 years.
When they release the new storage on these electrics, bring the miles up to 150-220, and make the batteries last a lot longer(see glass battery technology) then the oil industry is done.
A Prius is still acceptable with very high gas mileage of 45-55 miles per gallon of gasoline.
This is not the 70s and they do not have a monopoly on alternate transportation.
The only reason they still exist is people dislike change. So they buy gasoline driven vehicles.
Even now alternate oil wells are in South America and the Faukland Islands.
It is only a matter of time before the middle east becomes uncompetitive with other oil producing countries including Russia.
Our trucks are often driven by natural gas.
Beware of setting prices too high. The market will destroy you.
Also the Price of Gas is hurting people because of:
1. Ethanol is an inferior Alcohol which turns to Water, it reduces Mileage by over .29% per Gallon.
2. You have to spend more.
Not all States have Bad Gas. Check your States Laws on Motor Fuels for this Clause, "Octane shall be no less then 82". That means the Fuel distributors only have to put that amount of Octane in the Fuel. Octane is expensive so 82 Octane is just enough to keep your engine from Blowing Up. Engineers figured this formula out Decades ago.
States like Tennessee, Georgia and Florida do this for the Distributors. It money in their Tax Revenue Pocket and they love taking it from you.
I was out West on a Harley Vacation. At home I get 39.5 MPG running 70 MPH but out West I got 57MPG running at 75 MPH. I freaked out over the way the bike performed and the Gas Mileage. I found out when you pull up to a Pump and it's labeled 91, 92 or 93 it's real Gas....
If you don't like what's going on, Write Trump a Letter.
Interest rates going way up.
Business activity going way up.
Middle class finally growing again for America's natural resources which the citizens own, are being made available to the world.
Monetizing natural resources to foreign sources allows Americans to redirect for savings, consumption and investment. Look out!