There’s no denying the salience of gasoline prices in domestic American politics.
Since the oil shocks of the 1970s, which produced haphazard government attempts to regulate oil flows and frequent spot shortages resulting in long lines at the gas station, American political discourse frequently points to the price of gasoline as emblematic of government success, or failure, to maintain standards of living.
President Biden has been compelled by this pressure to take an apparently contradictory position—calling for OPEC to increase oil production while attending the COP26 climate conference in Glasgow, Scotland. Biden pointed a finger at the producers group, blaming OPEC and Russia for keeping prices high by refusing to pump more crude. This has not defused accusations that the President is falling asleep at the wheel and allowing gasoline prices to reach historic levels.
The power of this “panic at the pump” mentality endures due in part to the high relative cost of transportation as a share of household budgets. According to the US Bureau of Labor Statistics, transportation (including vehicle and fuel costs) accounted for 15-16% of average household expenditures in 2020, or approximately $9,826 per year. This makes it the second-largest household spending category, behind housing.
The power of this “panic at the pump” mentality endures due in part to the high relative cost of transportation as a share of household budgets.
Transportation costs vary widely by region, however, and isolating the impact of gasoline prices can be difficult owing to changes in regional prices, vehicle mileage, and the average time spent in the car. According to the BLS, rural residents spend a larger portion of their income on transportation (20%) than urban residents (15.7%), who can often take advantage of cheaper public transportation. Compared to the cost of healthcare and housing, the rise in transportation costs over the last twenty years has been smaller and more gradual. As a share of household expenditure, transportation has actually been in steady decline since 2000, dropping from an average of 20% to 16%.
Gasoline prices, while volatile and varied region to region (a consumer will pay far less in the Midwest than on the West Coast, for example) have generally hovered between an average of $2.50 and $3.50/gallon since 2005, passing through a high cost period (2011-2014, a period of high oil prices) and a low cost period (2016-2021), when the price average never exceeded $3.00/gallon.
The current spike in prices stems from the spike in the price of crude oil, which has climbed to $80/barrel. Yet prices are nowhere near the level sustained during oil’s boom years of 2011-2014. The hit to consumers likely feels heavier owing to cheap gasoline enjoyed during oil’s long price slump from 2014 to 2021. What is happening now is due to the COVID recovery. But given the cyclical nature of the global oil market, which is defined by regular booms and busts, a price increase in 2021 was broadly anticipated.
Of course, plenty of consumers—particularly those above the age of fifty, a key Republican Party demographic—remember the days when the price of gasoline never exceeded $1.00/gallon. Prices above $3.00 feel high, even if they are not high by recent standards.
But the significance goes beyond the size of the increase on the average pocketbook. Americans—again, particularly those of a certain age and demographic—are inclined to view an increase in the price of gasoline as a development of particular economic and political significance. This comes despite the fact that the federal government has very little power over movements in the price of gasoline, beyond releasing oil from the Strategic Petroleum Reserve to increase the crude supply.
For now, it does not appear as though OPEC is willing to increase crude oil production in the short term. The United States, meanwhile, has seen its crude production drop by more nearly 2 million bpd, from a 2019 high of 13 million bpd to around 11.3 million bpd. Estimates from the EIA suggest domestic production will reach 11.7 million bpd in 2022.
The winter months will see many regions struggling with an energy crunch brought on by the post-COVID shock.
The winter months will see many regions struggling with an energy crunch brought on by the post-COVID shock. Yet if past experience is anything to go by, complaints about high gas prices will continue to weigh on the Biden Administration well into next year, when some analysts predict prices may exceed $100/barrel. Outrage over the price is likely to continue into the mid-term elections of next year.