According to AAA data, the price of gasoline in the United States averaged more than $5 per gallon for the first time on Saturday, extending a boom in fuel costs that is fuelling growing inflation.
According to AAA data, the national average price for normal unleaded gas jumped to $5.004 per gallon on June 11 from $4.986 the day before.
High fuel prices are a worry for President Joe Biden and congressional Democrats as they try to hold on to their tiny majority in Congress ahead of the November midterm elections.
Biden has used a variety of tools to try to bring down prices, including releasing a record amount of barrels from US strategic reserves, waiving limits for manufacturing summer gasoline, and pressuring major OPEC members to increase supply.
However, due to a combination of rebounding demand, sanctions on oil supplier Russia following its invasion of Ukraine, and a squeeze on refining capacity, fuel prices have been surging around the world.
DEMAND THREATENED
Even as prices have climbed, US road traffic has remained reasonably solid, only a few percentage points below pre-pandemic levels.
Nonetheless, economists believe that if oil prices continue above $5 a barrel for an extended length of time, demand will begin to drop.
“We might see extremely substantial quantities of gasoline demand erosion at the $5 level,” said Reid L’Anson, a senior economist at Kpler.
According to US Energy Department estimates, the average price of gasoline in the United States is still about 8% below the highs of June 2008, when it was around $5.41 per gallon.
Even with inflation at its highest level in more than four decades, consumer spending has remained resilient, with household balance sheets bolstered by epidemic relief programs and a robust labor market that has fuelled solid wage rises, especially for lower-income employees.
According to the US Energy Information Administration, gasoline product supply, a proxy for demand, was 9.2 million barrels per day last week, roughly in line with five-year seasonal averages.
Drivers are paying high rates at a time when major oil and gas companies are making record profits. In May, Shell announced its best quarter in a decade, while Chevron Corp. and BP recorded their greatest results in a decade.
Other majors, such as Exxon Mobil and TotalEnergies, as well as independent shale producers in the United States, posted good results, prompting share repurchases and dividend investments.
Due to investors’ determination to keep the line on expenditure rather than respond to $100-plus barrel prices that have lingered for months, a number of companies have declared they will avoid excessive investment to expand output.
Refiners have been trying to replenish depleted supplies, particularly on the East Coast of the United States, as a result of exports to Europe, where purchasers are weaning themselves off Russian oil.
Refineries are currently operating at around 94 percent of their capacity, but overall refining capacity in the United States has decreased, with at least five oil-processing units shutting down during the pandemic.
According to observers, this has left the United States structurally short of refining capacity for the first time in decades.
