In case you haven’t already undergone sticker shock the last time you filled your car at the gas pumps, we now have AAA confirming what you’ve suspected: “Gasoline Prices Reach a New Milestone.”
According to AAA data, the average price of regular gasoline in the United States hit a record-high $4.57 per gallon yesterday.
The price of Gasoline in every state is now above $4 per gallon for the first time.
Drivers in California face the biggest hit. In the Golden State, prices of gasoline are at a new record of $6.02 per gallon, AAA said.
The surge in gas prices is contributing to the highest inflation in four decades. Rising prices and dwindling demand also contribute to taking a bite out of consumers’ wallets.
CBS News: Two Clues on Why High Prices
- Crude oil prices “remain volatile,” and pump prices are likely to continue to be high until crude drops below $105 per barrel. Currently, the benchmark Brent crude oil is trading at about $109 per barrel.
- Gas stations are switching to their summer blends of gasoline, which AAA says adds as much as 10 cents per gallon to motorists’ costs. The switch to the blend occurs annually, and is unrelated to the Biden Administration’s plan to allow E15 gasoline to be sold through the summer. That blend, which is 15% ethanol, is usually banned for purchase from June 1 to September 15.
Putin’s Russian invasion of Ukraine supplied President Biden with an obvious scapegoat/bogeyman for the high cost of fuel. The president has referred to “Putin’s war,” as being responsible for the high cost of driving for Americans.
This assertion, reports David Messler at Oilprice.com, doesn’t bear up under strict scrutiny.
There is a vague association that can be made, however, as the loss of Russian supplies, and near-universal embargoes, have stressed an already tight situation globally.
On two occasions Biden authorized tapping the Strategic Petroleum Reserve-SPR, with the hope of dropping the cost of gas and diesel for consumers. He has also authorized refiners to keep the E-15 blend to increase supplies of fuel during the summer driving season.
Biden’s attempt to deflect blame for the high prices and the attempt to flood the market with oil have both been perceived as failures, and perhaps left people confused about the primary source of cost inflation in the world today.
All of that brings Mr. Messler to conclude the big reason for high refined product prices that diverge from the last time oil topped $100 per barrel:
The money supply has been increasing gradually since the financial meltdown of 2008. With what is termed an “Accommodative” monetary strategy, the Fed has kept interest rates artificially low since that time creating asset bubbles of various classes, but particularly in stocks. Savers have had no option but to invest in stocks for yield. And, the DOW index has risen from 7K in Feb of 2009, to nearly 37K in recent months.
The Covid 19 shutdown that began in March of 2020 introduced a new wrinkle in global commerce. Supply chains and logistics were affected for the first time, causing bottlenecks and backups that created substantial gaps between surging demand, and the supply of everything. This occurred just as the U.S. Fed and Central Banks around the world began injecting liquidity into the system. Inflation had to be the result
The U.S. Central Bank, the Federal Reserve has begun to shift its 15-year-old posture of “Accommodation,” to remove excess liquidity from the system by increasing the discount rate-the rate it charges lending institutions and reducing asset-bond, purchases. The posture is known as “Tightening.” This will have the effect of increasing the interest rates paid by consumers and corporations and dampening demand for everything, including petroleum refined products.
Reduced demand will begin to relieve upward pressure on the prices of gasoline and diesel. To what degree remains to be seen. We still have all the other problems that make it an open question as to when or if they will begin to decline toward more affordable levels.
Mixed messages from the government and outright obstruction in the form of over-regulation, and reduced leasing opportunities cast a shadow on the future supplies of crude oil.
If you’re willing to fight for Main Street America, click here to sign up for the Richardcyoung.com free weekly email.