Motorists across the country are seeing something of an early holiday present each time they stop to fill up. This week, national gasoline prices fell to a new low for the year, $2.46 on average, which puts costs two-cents lower than a year earlier. It’s the first time since July 2017 that national gas prices have been cheaper year-over-year.
As a consumer-driven economy, the price displayed at your local pump stop is one of the most recognizable and reliable economic indicators.
The average U.S. family spends about five percent of its annual income on fuel, or more than $2,400 last year. Historically, when prices are high that percentage has jumped to as much as eight percent. And low-income earners feel the impact most acutely—in both directions.
The downward trend in retail fuel prices is a boon for consumers, and it owes largely the surge in energy development happening across the nation.
Domestic oil production has more than doubled over the last decade, and this fall, the United States unseated Russia and Saudi Arabia as the world’s largest crude oil producer. This remarkable output has helped to shave down crude prices by nearly a third to below $50 a barrel last month.
Still, for many, particularly those on the West Coast, the national shale revival has not translated at the pump. In California, for example, gas prices remain more than 40 percent above the national average — higher even than Hawaii. So, what gives?
As conventional wisdom holds, retail prices follow crude. But there’s more to the story. Crude oil makes up about half the price consumers face at the pump, and research indicates that a $1 change in the price of crude oil moves the retail value by approximately 2.4 cents. From there, many factors come into play, including local demand, state taxes, marketing and distribution.
One of the heftiest costs producers face — which, in turn, gets passed on to consumers — is that of moving energy products. Once pumped from the ground, developers ship oil and natural gas to refineries, which process it into market-grade fuels. These products are then transported to regional hubs, and finally on to the point of sale.
Studies show that as much as 20 percent of consumers’ costs owe to the expense of moving fuels from stage to stage.
Not surprisingly, states with the highest fuel costs tend to be those that lack midstream infrastructure to safely and effectively transport fuels.
The United States’ remarkable shale development has restructured the flow of energy from outside-in to inside-out, and pipeline deployment has struggled to keep pace.
In places like West Texas’ Permian Basin pipelines are at capacity, driving up costs and creating a backlog of supply. Further downstream, many regions lack the pipeline networks to tap into development occurring in the Bakken, Utica and Marcellus shale formations, which have become the epicenter of U.S. output.
It bears noting that most Mid-Atlantic states face fuel prices well above the national average even though some of the greatest energy production is occurring in the region. Although there are many contributing factors, the most glaring is the opposition to pipeline development that has been pushed by activists and adopted by lawmakers.
New York Gov. Andrew Cuomo’s ban on hydraulic fracturing caused the state’s natural gas production to fall by half, and what the Wall Street Journal called his “blockade” on infrastructure has caused fuel prices to soar for millions of Americans across the Northeast.
Many states aren’t doing their citizens any favor by imposing high gas taxes, either. Pennsylvania, home to much of the Utica and Marcellus shale fields, has the highest fuel tax in the country. Not surprisingly, the price per gallon of gas is nearly 10-percent higher than the national average.
Similarly, California and Washington boast the second and third highest gas-tax rates and the first and second highest prices at the pump, respectively.
America’s remarkable shale development has gone a long way to bring down costs for consumers, and in turn to stimulate the economy. Yet, for many, the price at their local gas station should serve as a reminder that the work’s not done.
To extend this progress nationwide, and to solidify the country’s march toward energy security, policymakers should prioritize the United States’ infrastructure capabilities.
Craig Stevens is a former senior adviser to U.S. Energy Secretary Sam Bodman and the spokesperson for Grow America’s Infrastructure Now.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.