Psychology suggests you probably want to blame someone for how much it’s costing you to drive this summer.
Driving the news: At an average of almost $3 a gallon, pump prices are 60 cents more than last Memorial Day and the highest in four years. Economists agree that no person or action can single-handedly affect pump prices over time, which are largely driven by a global oil market. That doesn’t mean we can’t indulge in the human condition of blame.
Americans often blame the sitting president for high pump prices, and this time there is some evidence to back that up.
Trump’s announcement earlier this month he would withdraw America from the Iran nuclear deal and re-impose sanctions on that nation’s oil supply is among the geopolitical risks pushing global oil prices higher, which are hovering around $70 a barrel.
His move could be adding around 10 cents a gallon to gasoline prices, according to Bob McNally, president of the Rapidan Energy Group consulting firm and former Republican energy adviser during the George W. Bush administration.
OPEC and Russia
But Trump is blaming OPEC, and there’s reason for that too.
Half the price of a gallon of American gasoline is driven by global oil prices, which are influenced heavily by the oil cartel, Organization of Petroleum Exporting Countries. OPEC’s oil exports represent about 60% of the total oil traded globally.
In response to prices plummeting below $30 a barrel in early 2016, OPEC members along with Russia agreed to cut production in November 2016. The higher prices we’re seeing today are partly as a result of that move.
Now that oil prices have risen to between $70 and $80 a barrel in the last few weeks, OPEC and Russia are considering boosting production. McNally predicts pump prices could drop as soon as next month if these plans stick and oil prices keep dropping.
Lawmakers often blame OPEC for high prices — and each other, particularly in an election year like this. But McNally suggests Congress should support moves by OPEC and Russia to stabilize the oil market.
“If they fail, gasoline prices are likely to soar well above $4 in coming years. I realize that reasoning doesn't get much sympathy at the retail political level but the history of crude price volatility shows the only thing worse than producers managing oil supply is producers not managing oil supply.”— Bob McNally, president of consulting firm Rapidan Energy Group
Conservatives and industry often blame the Environmental Protection Agency for higher costs, and in this case they're right--though this policy has been in place since the early 1990's.
The agency requires stricter emissions standards in the summertime for gasoline than winter. This stricter standard typically costs refiners several cents more to refine from crude oil to gasoline.
Where you live and what you drive
It costs way more to fill up in California ($3.73 a gallon) than it does in Oklahoma ($2.71). This is due to several factors, including higher state taxes and transportation costs of moving fuel.
As for your wheels, a Toyota Prius will save you more than a Ford F150, which has been America’s top-selling vehicle for decades. That’s probably not going to change, auto analysts say.
This bout of rising gas prices is unlikely to be nearly as intense as in 2008, when prices breached the $4 mark and briefly changed people’s buying habits. Prices then dropped precipitously amid the economic crash. If OPEC and Russia follow through and boost production, this run could be much shorter than anticipated.
“Unless it’s a very high price and sustained, we typically don’t see a change in [car] buying habits,” said Michelle Krebs, an executive analyst at Autotrader.
One last fracking thing
U.S. oil production has roughly doubled from five million barrels a day to more than 10 million over the past decade. This oil boom, fueled by fracking and horizontal drilling technologies, helped drive down global oil prices a few years ago and helps insulate gas prices to some degree, experts say. It doesn’t do anything to lessen America’s use of oil itself as a fuel or our dependence on an inherently volatile global market.
“The real solution is reducing oil demand through efficiency and alternative fuels. That requires sustained long-term efforts even when oil prices are low.”— Leslie Hayward, a vice president at the think tank Securing America's Future Energy