Gas Prices Drive the Economy

Sep 22, 2022 | Finconomics 101, No Bull Economics

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Gas prices are playing a huge role in consumer spending as reported by a number of restaurant chains but also most recently by AutoZone which noted an immediate reduction in discretionary product sales when gas prices were $5.50 a gallon on average across the country. Fortunately for the economy, gas prices have been trending down from record highs although they remain relatively elevated which has acted to depress demand on a y/y basis.

Regular Gas Prices Graph
US Gas Demand Graph

What’s behind the gas price hikes over the last year? Starting with the supply side, it does not appear to be much of a difference between 2022 & 2021 in terms of production or inventory.

US Finished Gasoline Production
US Gasoline Oil Days of Supply Graph

Rather, the problem stems from speculation (futures market) and exports (shipping our oil overseas). In conclusion, we could easily protect consumer spending by: limiting speculation of a core necessity by limiting (or eliminating) Wall Street bets on oil; and by limiting oil exports when gas prices are high. Also, we may need to add domestic refinery capacity for domestically sourced oil so we can actually use American oil to fuel American cars.    

RBOB Graph
US Oil Exports Graph

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