SHOPSMART AUTOS – AUGUST 18, 2021 – Who Is To Blame For Rising Gasoline Prices? (PT. 1)
This past week the national average price for regular gasoline rose to $2.71 per gallon. That marks an increase of $0.46/gallon since the beginning of the year. On a daily basis I see accusations on social media that this price rise is a consequence of Joe Biden winning the presidential election. I am going to explain why this is ludicrous, but I would pose the following to those who believe this to be the case. Since Biden’s inauguration, daily Covid-19 cases have fallen by two-thirds. Daily deaths are down by nearly half. Is Joe Biden responsible for this? If you say “No”, or you feel the need to hedge or qualify your answer, then you probably realize that cause and effect isn’t quite as simple as that. The same holds true for gasoline prices. The main reason I can say that Biden isn’t responsible for the rise in gasoline prices is that we understand pretty well why those prices are rising. Those reasons (mostly) have nothing to do with him.Factor 1: Rising Oil Prices
The single biggest factor influencing changes in gasoline prices is almost always underlying changes in the price of oil. Show me a time that gasoline prices spiked or plunged, and the vast majority of the time you will find that oil followed the same pattern. On the first trading day of January 2021, the price of West Texas Intermediate (WTI) closed at $47.47 per barrel (bbl). Two months later, on the first trading day of March, the price closed at $60.54/bbl. During the time gasoline prices rose by $0.46/gallon, the price of oil rose by $0.31/gallon. But gasoline prices often lag oil prices. In the past six months, the price of oil has risen by $0.56/gallon, while the price of gasoline is up $0.50/gallon. In other words, the vast majority of the gasoline price rise can be accounted for by the rise in the price of oil. I will explain other factors influencing the price of gasoline below, but why are oil prices rising? Is Biden responsible for that? The are two factors that have driven up the price of oil. One is that demand collapsed last year as pandemic measures were implemented and people stopped traveling. The price of oil plummeted. That, in turn, ended up idling 3 million barrels per day (BPD) of U.S. oil production relative to a year ago.
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