Higher prices show no sign of abating in the near future, as global powers continue to prevent disrupted supplies from keeping pace with strong demand from countries rapidly recovering from the pandemic. Western sanctions against Russia over its invasion of Ukraine have wreaked havoc on global energy markets, but the most dramatic measure – the European Union’s ban on Russian oil imports – will not Until it comes into effect Until the end of this year. Gas prices could also rise further as drivers hit the road for summer vacations, and the lifting of COVID-19 restrictions in some Chinese cities is expected to revive fuel demand there, adding upward pressure on prices internationally.
Energy costs rose 3.9 percent from April to May, while overall energy prices have risen 35 percent since last year, according to a Bureau of Labor Statistics report released Friday. The overall inflation rate reached 8.6 percent in MayThe government reported on Friday, the highest rate in 40 years.
The persistent rise in gas prices has emerged as one of the Biden administration’s main domestic political threats ahead of the fall midterm elections, and the White House has few clear solutions to reversing the trend despite massive pushback from top aides and the president. Himself. The White House is now caught between liberal allies in Congress pushing for an escalation of a populist attack on oil and gas companies, and the views of some trusted economists who believe those efforts may backfire.
a Published by The Washington Post and George Mason University’s Schar School on Thursday I found that Americans were generally concerned with inflation in general and high gas prices in particular. About 44 percent of drivers said they only partially filled their car’s gas tank as a result of price hikes, with 61 percent of those earning less than $50,000 a year. Nearly two-thirds of drivers reported making fewer trips to the grocery store due to higher fuel prices.
“This is a huge economic and political albatross around the neck of the administration, and the difficulty is that there is no easy way to address this with the policy tools at their disposal,” said Eswar Prasad, an economist at Cornell University.
Americans are not used to seeing high energy prices as they were over the past several months. The average price of a gallon of gas in the United States was $5,004 on Saturday, according to AAA. Already, at least 19 countries have Average gas prices are $5 or more, with California above $6 a gallon. Some analysts believe America may approach the nationwide average of $6 a gallon by the end of the summer. Diesel prices, which are especially important to the transportation and construction industries, jumped nationwide from $3.21 last year to $5.74 on Friday, a record high, according to GasBuddy, which tracks fuel prices.
These high energy prices are seeping into nearly every major part of the economy. They drive up costs for electricity, transportation, shipping, logistics, air travel, agriculture, fertilizer, and the production of other goods. They’ve carved out corporate profits: Walmart recently indicated that the fuel and warehousing booms are hurting its profits. Demand for natural gas is growing globally to offset Russian energy, and as a result the demand for natural gas in the United States is increasing, creating new financial pressures for domestic manufacturers and the country’s electricity grid — just as more and more Americans start running the air. Air conditioner this summer.
Higher energy prices are also often a harbinger of an economic downturn, as consumers respond to higher prices by reducing their spending on other goods and services. Historically, oil price hikes are like those facing the West now You have “Always” preceded or led to an economic recession, according to a research note by Jeremy Grantham, an analyst at investment and asset management firm GMO.
“I’d be on high alert now to see if the economy succumbs to this last stab in the heart from higher energy prices,” said Chris Robke, chief economist at Fwdbonds. “Realistically, it would be a miracle if we didn’t go into a recession.”
But the post-Covid economy has repeatedly defied expert expectations, and there is ample reason to believe that strong growth can withstand rising energy prices. Gasoline purchases accounted for nearly 3 percent of annual consumer spending before the pandemic began, according to the Bureau of Labor Statistics. In contrast to the 1970s, America is now a significant producer of the global energy supply—meaning higher prices benefit American energy producers, rather than straining domestic household costs, as companies can increase hiring and spending with their higher revenues. Businesses are also less vulnerable to fluctuations in gas and oil prices than they used to be, in part due to improved efficiency over the past several decades, according to Matthew J. Slaughter, an economist at Dartmouth College.
Economic growth has remained strong in the United States since shortly after the early pandemic shutdown was lifted, and policymakers had hoped demand would cool, as inflation soared with the fastest increases in consumer prices in nearly four decades. Some economists hope that increased energy spending can exhaust demand in other sectors, allowing other price pressures to ease. This may be painful in the short term, but it may generally help.
“It sounds hard to say, but we need a slowdown in aggregate demand,” Slaughter said. “And it’s not great relative to the other things in the consumption basket.”
But even as higher gas prices help slow the economy and tame inflation, they also put pressure on politicians. And lawmakers and the Biden administration They are desperate to reverse the trend. The White House has taken a set of measures aimed at alleviating the gas price crisis, such as committing to release one million barrels per day from the state’s Strategic Petroleum Reserve and publishing the Defense Production Act to encourage production of critical minerals. The White House also allowed the sale of a gasoline blend made up of partly ethanol during the summer despite resistance from environmental groups, who argue that the move would worsen air pollution.
the boss too It is said planning a trip To Saudi Arabia, as the United States looks to other parts of the world to increase oil production to reduce global dependence on Russia, the world’s third-largest oil supplier before the war in Ukraine. Biden once vowed to make Saudi Arabia a “pariah,” given its treatment of women and other human rights abuses. But the White House has defended the potential trip to help broker diplomatic talks in the Middle East and to increase oil production. The US government has Also try to work with Venezuela And other oil producers have been in oversupply since the start of the Russian war.
White House officials were frustrated, though, Their efforts have been stymied to this point by the world powers. Earlier this month, a group of oil-producing nations known as OPEC+ announced that they had committed to an even larger increase in production for this summer — a move quickly applauded by the Biden administration. Domestically, White House officials hoped the announcement would drive down oil prices, two people familiar with the matter said. Instead, prices continued to rise.
“They were really puzzled because there was no more permanent reaction,” said a person briefed by White House officials, who spoke on the condition of anonymity to describe the private conversations. “They were like, ‘Man, we can’t get some rest. “”
Biden on Friday blamed major oil and gas companies for not doing more to increase production, accusing them of choosing profits over lower prices for Americans. “They don’t drill. Why don’t they drill? Because they make more money without making more oil,” Biden said.
The Post-school survey It found that 72 percent of Americans blamed companies for trying to increase profits for high gas prices, including 86 percent of Democrats, 52 percent of Republicans, and 76 percent of Independents. The overall figure blaming companies was higher than the share that blamed Biden or the disruptions caused by the pandemic (both 58 percent) and the same percentage that blamed Russia’s invasion of Ukraine (69 percent).
Biden has refrained from adopting some of the measures that Democratic allies in Congress have pushed to target oil producers. Senators Sheldon Whitehouse (DRI) and Elizabeth Warren (D-Mass.) have introduced a tax on oil and gas company profits that would return revenue to consumers, with similar measures already enacted by the United Kingdom, Italy and some other European countries.
“US policymakers should quickly follow suit or risk continued exploitation and pain at the pump,” said Lindsey Owens, executive director of the left-leaning group Ground Work Collaborative. Cooperative basis have found The 24 largest oil and gas companies posted profits of $174 billion last year – the highest increase in seven years.
The White House said it is considering this approach, because adopting such a measure could give the administration an effective policy response to rising gas prices. But it will lead to a backlash from industry, centrist economists, and the Republican Party. Critics warn that taxing oil and gas companies would discourage them from increasing production, which could hurt prices in the long run.
Bob McNally, an energy analyst at Rapidan Energy Group who served in the George W. Bush administration, said the White House had no options that would immediately improve the gas price crisis. He said it was critical for Biden to avoid adopting solutions such as price caps and an oil profit tax, which he said would make the problem worse.
“The White House has two options: They can do symbolic things that don’t really drive prices down, and they can do stupid things that are counterproductive,” McNally said. “Despite my many reservations about the president’s energy policies, it is admirable that he has so far resisted getting into the stupid basket.”