Gasoline prices may rise throughout the summer now that the Fourth of July holiday period is over. That would mean that prices would creep back toward $3 a gallon, which is close to where they were a year ago. Americans use an extraordinary amount of gas per day, which means even a small price change can cost consumers hundreds of millions of dollars a year. With tensions in major oil-producing countries and anxiety about the most important shipping lanes in the world, gas prices could affect the U.S. economy.
According to the U.S. Energy Information Administration (EIA), Americans use nearly 400 million gallons of gasoline a day. The huge consumption is an indication of the role of gas in the finances of many U.S. households. There are 126 million households in the United States. Obviously, not all have residents who drive cars. But there are 281 million cars registered in the country, a sign of how big a part driving plays in everyday living. That is why many economists say gas prices have a major effect on consumer confidence and, by extension, gross domestic product. It is also why there is worry that current world events could cause a spike in gas prices. Not all Americans would be affected equally because the price of gas varies significantly by state — and these are the states with the highest and lowest gas taxes.
The largest refineries in the United States are in Texas and Louisiana. While America grows ever more energy independent, these and other large refiners continue to rely on imported oil. Major sources of these imports include Venezuela, Mexico and Saudi Arabia, each representing a potential danger to supplies shipped to America. Venezuela’s government is one of the most unstable in the world. This has triggered economic problems and a drop in its ability to export oil. Mexico’s oil-producing infrastructure is aging, cutting its ability every year to ship oil abroad. Saudi Arabia and other members of OPEC have decided to cut production to increase prices. Those increases will start to bite within a few months.
A challenge that is potentially as large as the levels of exports from oil-producing nations is the ability of that crude to get to market. The EIA calls the Strait of Hormuz the “world’s most important oil chokepoint.” Experts at the EIA wrote recently, “its daily oil flow averaged 21 million barrels per day (b/d), or the equivalent of about 21% of global petroleum liquids consumption.” The shipping lane runs between Iran and the United Arab Emirates. Attacks on shipping in the area have triggered concerns about whether the shipping lane’s traffic could be disrupted. That problem by itself could cause a sharp spike in gas prices.
What does 400 million gallons of gas a day mean to the economy? That depends on the price per gallon. At this point, the price faces volatility and the threat that the price of all those gallons could rise, perhaps substantially. To make matters more difficult, as the world searches for alternatives for oil, the investment in global renewable energy will not hit a high level until 2050.
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