Rising Fuel Prices Have Upended the Economy

Unless you’ve spent the last twelve months locked inside your home, then you’re probably dreading the next trip to the gas station. The average price for a gallon of 87 octanes has reached $3.40 in the United States. That’s about 50 percent steeper than it was at the start of 2021 and undoubtedly more than you’re wanting to shell out today. Though one cannot ignore the dizzying rates being advertised outside of British “petroleum parlors” or France’s many “un bordel pour voitures.” Canadians are also forced to endure higher gasoline prices, as the government tends to stack the taxes a little higher and the U.S. dollar tends to be more valuable. At least for now.

All you need to know for the purposes of this article is that fuel prices are up and it’s influencing the economy in some pretty dramatic ways.

Let’s start with the obvious. When gas prices are low, humans tend to scurry around their given territory more regularly. But the inverse is true when they’ve crept up to a point where drivers start second-guessing which trips they’ll be making due to a newfound aversion to filling up. That could mean fewer trips to the local grocery store, forgoing vacations, and even opting out of other purchases to make sure the fueling budget is robust enough to make it to work every day. Gallup polls have consistently shown that consumer confidence in the economy can be inversely correlated to the average price of gasoline.

This hurts retailers, who see fewer people visiting the local shopping center or logging onto their website. Higher gas prices also mean loftier shipping rates, with the difference frequently being passed onto consumers. This is particularly true of products coming in from overseas, as they’re required to traverse thousands of miles before reaching a final destination. Airline tickets will also go up in value as fueling prices tend to represent a large portion of the industry’s overhead.

Then there are the jobs. While the United States has seen an outcry for entry-level positions (e.g. food services and retail), elevated gasoline prices typically begin restricting employment the longer they persist. We’ve seen this begin to manifest among the gig economy, especially as it relates to the ride-haling/delivery services offered by Lyft and Uber.

According to the Financial Times, drivers and analysts covering the sector are reporting changes in payment algorithms to account for a 59-percent rise in the cost of fuel over the past year. Customers are being charged more and contractors are making less, encouraging them to spend fewer hours per week behind the wheel — and not just in North America.

“Drivers seem to be driving less,” Melissa Berry, editor at The Rideshare Guy, told the outlet. She said the change in driver behavior due to fuel prices “has no doubt exacerbated the driver shortage Uber and Lyft have been periodically finding themselves in.”

From FT:

Petrol prices, posted at corner stations, have been among the most visible indicators of accelerating inflation in the US. A retreat in oil markets over the past week may bring down retail petrol prices, but so far drivers have experienced little relief.

And the reason for the oil market reversal — fears that the Omicron coronavirus variant could clamp down on mobility — will hardly cheer drivers on ride-hailing apps.

To cover extra fuel costs, many gig drivers have adapted with changes including rejecting more customers who are far away. Others are quitting.

“Some drivers have been decreasing the amount of hours that they do. Some drivers have gone looking for other jobs,” said Beth Griffith, a former Uber and Lyft driver who heads the Boston Independent Drivers Guild.

An online poll conducted this week by The Rideshare Guy found that 91 per cent of rideshare drivers were worried about petrol prices, and about half of drivers were driving less. Twelve per cent said they stopped driving entirely as a result of high prices.

Uber’s solution has been to encourage drivers to swap to electric vehicles that aren’t reliant on pump gas. But EVs often come with higher price tags drivers cannot afford (even with the sizable tax credits) and are better suited to urban environments where range isn’t likely to become an issue. To remedy the first issue, Uber has opted to purchase 50,000 Tesla vehicles as part of a rental scheme. However, it’s charging employees a staggering $344 a week to use them, making it seem as though the entire plan was designed to take advantage of drivers in their moment of desperation.

With with vehicle operators paying an average of $3.40 a gallon for regular unleaded (up from $2.27 this time last year, according to data from GasBuddy), regular Americans are having to make increasingly difficult decisions of how to allocate funding as inflation (exacerbated by the fueling issue) further complicates financial matters.

Politicians don’t appear to be fairing much better.

World leaders, including Joe Biden, have been calling for the Organization of the Petroleum Exporting Countries (OPEC) to increase production. But little headway has been made since the current situation gives those nations loads of political influence, encouraging the Biden administration to join with China and a myriad of other gas-blasted nations to tap into their strategic oil reserves in a desperate attempt to ease the financial pressure. Though it must be said that this time in 2020, the United States was energy independent and wholly un-reliant on foreign oil. Perhaps with sounder energy policies, that could be true again.

As things currently stand, West Texas Intermediate crude has still gained around 45 percent this year — which happens to be great if you’re the one selling it. But local oil producers are under pressure from investors to limit output to maximize profitability. Meanwhile, environmental activism has made pursuing any energy that’s not deemed renewable taboo. This has made it more socially acceptable and financially prudent for energy concerns to raise prices, rather than increase volume.

Don’t believe us? You might want to take a gander at the stock market. Energy has been dubbed the S&P 500’s top-performing sector for 2021.

[Image: Michael Vi/Shutterstock]