Rising fuel prices hit US consumers hard
Economist warns they will experience once-in-a-lifetime ‘price-sticker shock’ at gasoline pumps for rest of the year
At the Costco gasoline station in Sunnyvale, California, on March 19, a driver who asked to be identified only as Francisco paid more than $106 for 20 gallons (nearly 76 liters) of fuel, the cheapest price he could find that morning.
Francisco, who owns a landscaping business in the San Francisco Bay Area, recently started to use the GasBuddy app to save money on fuel. The app traces real-time prices at gasoline stations in the United States, Canada and Australia.
According to Francisco, the price of gasoline in his area has risen by at least 30 percent since February.
His two trucks and other equipment, such as lawn mowers and leaf blowers, all use gas. If prices continue to rise, Francisco said, he would have to pass on the extra cost to clients, which will be “really bad” for his business.
Gasoline prices moved closer to $6 per gallon on March 19 at stations across the Bay Area, with the highest prices reported in Marin County, Napa and San Francisco, where they went beyond $5.90 per gallon.
The average price for gasoline in the US surged to a record high as the Russia-Ukraine conflict heightened concerns that it might disrupt supplies of oil from Russia. However, the average nationwide price on March 19 fell to $4.26 from a peak of $4.33 on March 11, which surpassed the previous high of $4.10 in 2008.
In California, gasoline prices have risen steadily. The statewide average price climbed from $5.44 per gallon in early March to $5.83 per gallon on March 19, according to the American Automobile Association.
The state has the most expensive gasoline in the US. Experts said this is partly due to its higher gas tax and tougher environmental and emissions laws.
Kevin Slagle, vice-president of strategic communications at the Western States Petroleum Association, said California is also a “fuel island” — a location that does not receive any fuel through interstate pipelines.
California’s fuel supplies are either produced in the state or transported there by ship or truck, with related costs passed on to consumers.
The surge in energy prices and record-high inflation have pushed up charges for food, rent, clothes and many other goods.
Soaring gasoline prices, in particular, are having a significant impact on household budgets.
According to an estimate by the Yardeni Research consultancy, a typical US family could incur additional costs of $2,000 a year due to higher gasoline prices. In addition to about $1,000 in extra costs at grocery stores due to inflation, a typical household will have $3,000 less this year to spend on other items.
As gasoline prices rise, consumer spending tends to fall. According to analysts at JPMorgan Chase, each 10 percent rise in gasoline and oil prices will require consumers to fork out an additional $23 billion a year to maintain their spending patterns.
Rising fuel prices have also accelerated falling real incomes, contributing to a decline in consumer confidence, according to a monthly survey of consumers by Michigan University. The Michigan Consumer Sentiment
Index in March fell to an 11-year low of 59.70.
Families budgeting for higher gasoline charges are reducing their spending in other areas. Some people are already driving less due to the higher prices. One in three adults said they cut their use of cars in February, with most blaming rising gasoline prices, according to global data intelligence company Morning Consult.
Joe Brusuelas, chief economist at Wall Street research company RSM, predicts that the US public will experience a once-in-a-lifetime “pricesticker shock” at the gasoline pumps for the remainder of this year.
He said this is because an oil shock coupled with broader inflation has not affected the US since the mid1970s.
Economists are concerned that rising energy prices may worsen overall inflation. Coupled with the intensifying geopolitical crisis, this could slow the economic rebound in the US.
Goldman Sachs has lowered its
forecast for annual US economic growth, citing higher oil prices. It said that there is a risk the US will enter a recession in the next 12 months.
Peter McCrory, an economist at JPMorgan Chase, told The Washington Post, “The rise in energy prices will weigh on US economic growth, but overall, we are still looking for above-trend growth for the year.”
Patrick De Haan, head of petroleum analysis at GasBuddy, expects gasoline prices to continue falling. He said in a tweet that demand for the fuel across the US through March 17 was at its highest point since midDecember.
Gasoline prices are directly linked to global supply and demand, which De Haan said have changed due to the COVID-19 pandemic and the RussiaUkraine conflict.
When demand for gasoline and oil plunged at the start of the pandemic, oil producers cut production, which reduced supplies. But as the global economy recovers from the pandemic,
production continues to lag.
Prices for gasoline in the US have risen steadily for nearly two years. As the economy recovers from the pandemic and people resume driving, demand for the fuel is rising.
Against the backdrop of steadily rising prices, the US imposed a ban on Russian oil and other energy imports this month. Although the US imports less than 10 percent of its oil and gas from Russia, domestic prices are still affected by the sanctions.
According to experts, this is because the surge in gas prices is due to the larger global oil market, and the US sanctions are making it difficult for Russian oil to flow to the world market.
US President Joe Biden has called on oil companies to reduce gasoline prices, stating that the cost at the pumps should reflect the recent fall in the cost of oil per barrel.
The top executives at six oil companies have been called to appear at a hearing of the House Energy and
Commerce Committee in April in connection with rising gasoline prices due to the conflict in Ukraine.
Frank Pallone, chairman of the committee, said oil companies are currently seeing record profits and have kept supplies low and prices high.
Republican lawmakers are blaming Biden’s policies for higher gasoline prices. They point to the administration’s decision last year to cancel the Keystone XL pipeline, which was to have transported oil from Alberta, Canada, to US refineries, and to Biden’s executive order to pause oil and gas drilling on federal land in January last year.
However, experts said the US is producing more oil now than it was in 2020. For the week to March 4, it was producing 11.6 million barrels per day, compared with a daily average of 11.3 million barrels two years ago, according to the Energy Information Administration.
Following a court ruling that temporarily restored a measure designed to factor the cost of global warming into federal decision-making, the Biden administration on March 18 said it would resume plans for oil and gas development on federal land.
Lawmakers in Congress have proposed ways to lower gasoline prices, including temporarily waiving an 18-cent-per-gallon federal tax on the fuel. A growing number of states are also considering whether to temporarily waive local gasoline levies.
On March 17, legislators in California proposed a different form of relief — introducing a bill to provide $400 tax rebates to defray costs.
Some experts suggest that gasoline prices will remain high for weeks, if not months. De Haan said in a tweet that if oil prices remain below $100 a barrel for a while, drivers may eventually see some relief at the pumps, with prices falling below $4 a gallon.
Gasoline prices are expected to fall eventually, but a significant reduction is not expected soon.
Meanwhile, according to intelligence company Rystad Energy, if most countries decide to shun Russian oil, the price could reach $240 per barrel. Short of a global ban on Russian oil, the company expects prices to top out at between $120 and $160.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, said the impact will be felt most in poor countries with economies based on agriculture. If the conflict in Ukraine persists, the risk of recession will grow by the minute, he added.
To help ease the supply crunch, the International Energy Agency, or IEA, said the world could quickly ease global oil demand by 2.7 million barrels a day by reducing air and road travel.
The agency, which is based in Paris, urged countries to adopt such measures in time for the annual peak demand season in July and August.
In a report released on March 18, the IEA said “practical actions by governments and citizens” could significantly reduce oil demand, make fuel cheaper for consumers, shrink Russia’s hydrocarbon revenue, and boost efforts to reduce greenhouse gas emissions.
The agency proposed a 10-point plan, including reducing highway speed limits, working from home for up to three days a week, encouraging the adoption of electric vehicles, and making it cheaper to use public transportation.