May 16, 2023
Pump prices may still be quite high (or if you just left the pump swearing, too damn high). The good news for consumers is a drop in oil prices could be in store as a weakening Chinese economy lowers demand. Then again, just one damaging hurricane or refinery issue this summer could send average gas prices above $4 a gallon. And if it hits $4, that will mark a 25% jump from the start of 2023.
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Lacking any crude crystal ball, if you will, it’s difficult to tell which way things will break. You’ve got other positives at work; the seasonal price spike that comes with refineries switching to “summer blend” looks to be over, meaning prices should fall in the next few weeks. The question is whether some other development will offset the drop. As in: Was that the U.S. debt ceiling we just heard buckle?
Meanwhile, U.S. crude futures continue to drop. Brent Crude prices are now in the $75 a barrel range as of this writing, down a third year over year and about 13% since the beginning of 2023. In the first half of May, prices have fallen 5% as fears abound over China’s diminishing imports.
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The question is: Why aren’t average gas prices closer to, say, $2 a gallon when the U.S. is the world’s largest oil producer? It’s not an easy question to answer. First, America is also the world’s largest oil consumer. As such, it relies on imports from the Middle East, Canada, Mexico and China. Yet Chinese oil in theory should be cheap as its domestic economy continues to hobble, right?
That’s where it gets even more complicated.
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Is America really independent?
Public perceptions surrounding America’s petroleum paradox haven’t helped to puzzle out the picture. Many Americans believe energy independence was achieved under former President Donald Trump and then lost under President Joe Biden, according to energy expert Robert Rapier.
But what is energy independence exactly, and are consumers laboring under skewed perceptions? In a recent Forbes article, Rapier defined energy independence as the point when a nation produces more energy than it consumes. And guess what? America is there and has been since 2019, according to the Energy Information Administration (EIA).
In fact, the U.S. is at its highest level of energy independence in 70 years — though how that shakes out illustrates a textbook example of apples and oranges. As Rapier explains, the energy America imports is crude oil, which suits our energy systems. The energy America produces, however, is often shale oil, which the U.S. exports.
It’s not just a preference, but also a money-motivated choice. After importing crude oil, companies can process it and export the finished product at a profit. So it’s not that Americans need the oil so much as energy processors want the cash, Rapier explains.
On track to deliver, no matter the president
Rapier’s article was met with backlash across the internet. Some contended that Trump got the country to this point where energy independence was meaningless for consumers.
Yet Rapier, a registered Independent, countered in a follow-up piece that, “This trend toward energy independence has been in place since 2005. Overall, the U.S. produced 2.5% more energy in 2022 than we consumed. By comparison, in 2005 the U.S. consumed 44% more energy than we produced.”
While it would be easy for the Biden Administration to take credit here, energy independence works by and large outside of government decisioning. Multiple factors, especially a shale boom, have driven it, says Rapier.
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So why is gas still so expensive?
But, you might say, that doesn’t answer why pumping up continues to be so painful — financially, that is. In a word: COVID.
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The pandemic caused an unprecedented gas price collapse in 2020 as millions of Americans sheltered in place. As prices stayed low, people got used to them and no one could pin down a time when the world would open up again and prices would stabilize — you’d have been better off asking an infectious diseases expert than an economist.
The reverse economic situation is true today. While supply is stable, demand continues to rise from COVID-19 pandemic levels, leading to a spike in gas prices. U.S. vehicle travel miles (VMT) rebounded in 2021 and 2022 — to 3.14 trillion and 3.17 trillion, respectively — after retreating in 2020 to 2.90 trillion; the 2022 figure marks a nearly 10% mileage jump over two years. Meanwhile, Russia’s war on Ukraine has further jacked up prices due to global sanctions on the country.
After gas prices hit a peak in 2022, the EIA forecasts they’ll drop to a national average of about $3.32 per gallon this year and $3.09 by 2024 — though of course if a debt ceiling crisis erupts, all bets are off.
A renewable answer
In the long run, it’s worth asking another question: Will concerns over gas prices fade over the next decade? Renewable energy in particular has seen a massive usage increase of 115% since 2005, even though it takes up just 12% of total energy consumption, according to the EIA. Renewables should replace fossil fuels in the next few decades.
It’s just not just from the growth in the use of renewables, but the lower production costs. Declining costs across the board, from solar panels to wind turbines, allow for government funding and continue to be increasingly cost effective, according to the EIA.
Meanwhile, coal continues to drop in use, with natural gas next on the potential chopping block. And under proposed EPA regulation, zero-emission vehicles would account for 54% and 60% of sales of 2030 models and 67% of 2032 models.
Imagine it: Some time in the future when someone asks you, “Why are gas prices so expensive?” you could drive off in your EV and respond with a laugh: “Frankly, my friend, I don’t give a damn.”
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Amy Legate-Wolfe is an experienced personal finance writer and journalist. She has a Bachelor of Arts in History from the University of Toronto, a Freelance Writing Certificate in Journalism from the University of Toronto Schools, and a Master of Arts in Journalism from Western University. Amy has worked for Huffington Post, CTVNews.ca, CBC, Motley Fool Canada, and Financial Post. She is skilled at analyzing trends and creating content for digital and print platforms. In her free time, Amy enjoys reading and watching British dramas on BritBox. She is a mother and dog-mom to a Wheaten Terrier.
