What’s Up With Gas Prices?
A Recess Q&A Document for the 115th CongressQ: Why are gas prices rising?
A: The single greatest factor in the price of gasoline is the price of crude. This is not surprising as, according to the Energy Information Administration (EIA) about 57% of the cost of providing gasoline to consumers comes from the price of crude. And since oil is a globally traded commodity, understanding oil prices requires a look at global supply and demand. Currently, there has been an overall rise in the global demand for oil – especially with the strong US economy and the upcoming summer driving season – and production in other parts of the world has been impacted by events such as uncertainty with Venezuelan production and Iranian oil exports.
Q: I thought the US was now producing all this oil? Why is that not helping prices?
A: It is. America’s growing oil production has helped to mute these global impacts for U.S. consumers as they hit the road this summer:
- Oil prices are the #1 factor in the cost to make motor fuels. But U.S. oil prices have been more than $5 per barrel below international prices; this is a discount that U.S. consumers received because we have strong oil production at home.
- Although gasoline and diesel fuel prices have risen recently, they are still well below prices we saw just four years ago.
- Before the upswing in U.S. production, gasoline-prices rose by an average of 22 cents per gallon during the summer. Over the past three years, though, prices still rose—but only by 13 cents per gallon. There have always been costs associated with making special clean fuels the government mandates for summer, but the growth of U.S. production has reduced prices and their volatility.
Q: Oil and natural gas companies, like all others, just had their corporate tax rate lowered to 21% from 35%, so why am I paying more at the pump?
A: Tax reform has nothing to do with the price at the pump! Prices are influenced by world markets and not tax reform. However, savings associated with the lower corporate tax rate represents potential capital for new projects and wages for new employees. The U.S. energy renaissance has led to supply growth that contributed to a decline of global oil prices that began in 2014. U.S. tax reform is one important component to keep the U.S. energy renaissance going. By improving U.S. competitiveness and creating opportunities for investment in production refining, and energy infrastructure like pipelines, the US can generate more resources in the future that could increase supplies. However, just months after being enacted, tax reform should not be expected to have had any substantive impact on world oil prices, which are established in a competitive global market.
Q: Some politicians have claimed these companies get taxpayer subsidies, is that true?
A: No. The oil and natural gas industry did not receive any unique credit or subsidy in the tax legislation. They are generally treated the same as any other industry by the tax code – same rate, able to recover their costs, etc.
Q: What are all these other costs I pay at the pump?
A: According to EIA, federal, state, and local government taxes also contribute to the retail price of gasoline. Federal taxes and fees of 18.4 cpg are imposed on gasoline sold – and 24.4 cpg for diesel. Further, the current average of state and local motor fuel taxes and fees can add another 33.7 cpg. All, told, government taxes and fees have accounted for about 18% of what consumers pay at the pump.
For more information, visit GasPricesExplained.com