What Drives Gas Prices Up, and How We Can Steer Them Down

From The Daily Signal.com (May 28):

Nationally, gas prices have risen steadily since the beginning of the year, though they dropped recently to $2.86 per gallon. Snow and unseasonably cold weather in the Midwest and Western U.S. kept Americans at home in recent weeks, decreasing demand and lowering prices a few cents per gallon. The current national average is nearly identical to what gas prices were a year ago.

Weather, though, is just one component that affects the price at the pump. The price of crude oil is the single largest factor.

According to the U.S. Energy Information Administration, crude oil prices make up 57% of the price of retail gas. Federal and state taxes, refining and distributing, and marketing accounts for the rest. A number of factors both in the U.S and around the world affect the supply of and demand for oil, which consequently influences the price we pay.

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There’s a lot at play here, which is why forecasting where gas prices will be in the next six months is as reliable as a Magic 8 Ball. And let’s not forget public policy. Clearly, a number of variables that are out of policymakers’ control (such as weather) affect gas prices.

Yet, many federal government policies artificially inflate gas prices and here is one area where Congress and the Trump administration can and should do something.

The first order of business for Congress is to do no harm.

For example, several lawmakers have floated the idea of increasing the federal gas tax to pay for a massive infrastructure bill.

But if households spend more on gas, they have less disposable income to save or to spend, whether on entertainment, on clothes, or on health care. Businesses will face higher costs for transporting their goods and will pass those costs on to consumers. Low-income families who spend a higher percentage of their budget on energy bills will be hardest hit.

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Alternatively, Congress should empower state governments and local governments, which are better connected to the true infrastructure needs of their communities.

Furthermore, Congress should implement reforms that will open access to energy markets and drive down prices at the pump. When it comes to oil and natural gas production, Americans are fat and happy. As the world’s largest oil and gas producer, the U.S. is an undisputed energy powerhouse. But that is no excuse for policy complacency.

Opening access to America’s abundance of resources now will ensure that businesses can respond more effectively to changes in prices, rather than waiting for Congress to react after prices become politically uncomfortable. Congress should:

• Streamline infrastructure permitting to ensure that more oil gets out of the ground and to market while maintaining high environmental standards.
• Jettison federal policy mandates that refiners blend ethanol into our fuel supply, which drives up fuel and food prices for households.
• Eliminate century-old laws (such as the Jones Act) that limit which ships can carry oil from coast to coast, forcing prices higher and protecting special interests.

These are the policy reforms necessary for American energy producers to capitalize on our wealth of natural resources, which will drive the economy and the prices at the pump in the right direction. [read more]

Another article on gas: How Natural Gas Exports Are Giving America a Key Edge