Fueling up for your Memorial Day weekend road trip is going to be much pricier than it has been in years.
Gas prices are approaching $3 a gallon nationally — a 25 percent increase since last year and the highest they’ve been since 2014.
The surge could dampen the pace of the economy by forcing Americans to spend more at the gas pump and less on other goods and services. If it costs more to fill up your car, it means you have less money to spend going out for a meal or buying clothing.
That could be politically costly for the Trump administration and its Republican allies as they head into the midterms. Even if prices don’t keep rising — and they might — the pain at the pump could erase some of the economic gain Americans received from the administration’s massive tax cut.
“If you look at the benefits of what households are getting from lower [tax] rates, roughly one-third of that is wiped out if these higher gas prices are sustained,” Ellen Zentner, the chief US economist at Morgan Stanley, told Politico.
And there are a number of reasons to think prices will stay at their current levels — or rise further. Analysts say the core of the issue is that global demand for oil is exceeding global supply, and that the imbalance is driving up prices.
Patrick DeHaan, a senior petroleum analyst at GasBuddy, a firm that monitors gasoline pricing, told me that the biggest factors are that the Organization of the Petroleum Exporting Countries (OPEC) has cut production and because oil production in Venezuela is plunging amid the country’s ongoing economic and political crisis.
OPEC is a cartel of 14 major oil exporters including Saudi Arabia and Iraq that have deliberately produced less oil in recent years to make oil more expensive in global markets. Since their economies are heavily dependent on oil exports, higher prices abroad mean more money at home.
And the economic and political crisis in Venezuela, which sits atop the world’s largest oil reserves, has exacerbated things further. Corruption, decaying oil infrastructure, and a starving workforce have caused production to plummet to the lowest levels in decades.
President Donald Trump’s decision to pull out of the Iran deal earlier in May has pushed oil prices higher still. The Trump administration is currently in the process of reimposing sanctions on Iran’s oil sector, and the energy firm FGE estimates that the sanctions could cause Iran to slash its oil exports by up to 1 million barrels of oil a day. That would dent global oil supply and make gas even more expensive.
No one really knows if oil prices are going to keep rising
Antoine Halff, a scholar at Columbia University’s Center on Global Energy Policy and a former analyst at the International Energy Agency, says a key question surrounding future oil prices is what OPEC decides to do at its meeting in June. Because of the Iran sanctions and Venezuela’s production woes, OPEC could decide that it should export more oil in order to make sure prices don’t rise too high and kill off demand.
Another variable is how the Trump administration approaches Iran. If the two sides start talking openly about war, oil prices could skyrocket as investors brace for continued instability — or far, far worse — in the region that produces much of the world’s oil.
That could send prices spiraling up well past $3 a gallon at the gas pump, which could really begin to hurt American consumers and the political standing of Republican Senate and congressional candidates.
The Trump administration thought the tax cuts might be a good way to get more money in people’s wallets before the midterm elections. But if gas prices continue to surge, people might not feel it at all.