The People of America's Oil and Natural Gas Indusry

Gasoline Prices and Perspective

Mark Green

Mark Green
Posted May 24, 2018

Let’s add some needed perspective in the ongoing discussion of U.S. gasoline prices – even as Washington politicians try to exploit them for their own agendas. The latest political play: Senate Democrats want the president to cajole other nations into producing more oil to increase supply in hopes of moderating things at the pump.

Certainly, increasing global crude supply is important, because in the past doing so has put downward pressure on the cost of crude, the No. 1 factor driving gasoline prices.

But, since we’ve seen how much lower and less volatile prices have been the past four years, thanks to the growth of U.S. oil production, wouldn’t it be smarter to encourage greater oil production here at home? Senate Energy Committee Chairwoman Lisa Murkowski thinks so:

“I was stunned to hear my colleagues encouraging more production from the likes of Iran and Saudi Arabia, rather than right here in America.”    

Murkowski added in a tweet:

Murkowski refers to a number of policies and outcomes that support domestic oil production, including updated infrastructure, streamlined regulation and more access to U.S. reserves, offshore and onshore. Coincidentally, the U.S. Energy Information Administration is just out with an analysis that says the coastal plain of the Arctic National Wildlife Refuge in Alaska will produce 880,000 barrels of oil per day at its peak in 2041. That’s a lot of oil when you consider current North Slope output is about 560,000 barrels per day.

Now, as for perspective on gasoline prices, let’s underscore a few points:

Supply and demand matters

Crude oil is a globally traded commodity and, again, its trading price is the chief driver of prices at the pump, currently representing 57 percent of the cost of a gallon of fuel, according to EIA.

dollar_bill_gasoline_prices

Global oil demand has risen and reduced the world’s cushion of petroleum inventories, so geopolitical forces recently have had more of an impact on prices as well. The International Energy Agency attributes the increase in global crude prices, from $52 per barrel in January 2017 to more than $71 per barrel, to stronger demand, production declines in Venezuela and uncertainty over how U.S. sanctions will affect oil supplies from Iran. The bottom line is a looser global oil supply/demand balance usually has been the best way to maintain affordable, abundant and secure supplies.

Meanwhile, here at home, the approach of Memorial Day and the summer driving season usually has found Americans driving more, increasing demand for fuels. Still …  

Gasoline prices today are lower than they were four years ago

API Chief Economist Dean Foreman noted this in his post earlier this week, which included this chart:

gasoline_crude_prices

This has occurred largely because of increased U.S. oil production, which has added to global crude supplies, with obvious benefits to American consumers. That’s not to minimize the current impacts on family transportation budgets this time of year, but it’s important context to be acknowledged as we better understand what has affected pump prices.

Taxes and regulation play a role, too

As Dean pointed out in his post (and as EIA explains), another factor at work is the combination of federal, state and local gasoline taxes. The federal gasoline tax is 18.4 cents per gallon; different state and local fees and taxes can cause pump prices to vary from state to state.

At the same time, summer driving season means that, by law, summer-blend gasoline is required to help lower emissions. AAA has a good explainer on the differences between summer- and winter-blend gasoline. The main point is that the summer blend required by EPA has historically cost more to produce.

The larger point is we need Washington focused on policies that strengthen the U.S. energy renaissance – which is the best strategy to protect consumers, our economy and security – versus bad approaches that could make things worse.


ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.