American Fuel Consumption Goes Down, Prices Do Not
Fuel prices have been climbing this year and continue to do so. However, consumer demand can no longer be blamed as we enter into the autumn months when consumption consistently drops. The Energy Information Administration (EIA) estimates that Americans were burning through a million fewer barrels of oil last week than they were the week before.
What isn’t dropping is oil prices and that seems to be making all the difference.
According to the American Automobile Association (AAA), oil has surged upward to about $90 per barrel. Taking a look for ourselves, WTI Crude is pegged at the time of this writing near $91.50 per barrel while Brent and Murban Crude are a few dollars higher per barrel than that.
“Oil costs are putting upward pressure on pump prices, but the rise is tempered by much lower demand,” explained AAA spokesperson Andrew Gross. “The slide in people fueling up is typical, with schools back in session, the days getting shorter, and the weather less pleasant. But the usual decline in pump prices is being stymied for now by these high oil costs.”
However, there always seems to be a contingent of willful ignorance surrounding the topic, as there’s no shortage of people suggesting that fuel prices are dropping when there’s literally zero evidence to support the claim. We’ve also seen this take place in regard to vehicle pricing and a bevy of other economic issues, as there’s a similarly unlimited supply of people who’ve managed to thrive in this world without having been burdened by reality.
The best we can say is that gas prices have stabilized somewhat after pitching up in 2021 and giving way to a totally volatile oil market in 2022. They even managed to come down late last year, presumably because consumers in Western markets looked to be on the cusp of revolting against society. Europe’s energy crisis (which included electricity and natural gas) actually became so dire that riots erupted in major cities while customers discussed widespread nonpayment on the grounds that the relevant companies were enjoying record-breaking profits.
Still, 2023 has been a year where fuel prices have seen a relatively steady climb back toward unacceptable levels. January may have boasted a national average a stone’s throw away from $3.30 per gallon. But it’s now at $3.85 and people still remember a gallon of regular being closer to $2.50 in 2019 and averaging well below $2.00 throughout most of 2020. It’s hard for anyone to feel like today’s prices represent any kind of economic victory.
The Biden administration has vowed to bring fuel prices back down, with the president again making mention of the issue in Maryland last week. "I'm going to get those gas prices down again,” he said. “I promise you.”
But how Biden intends to do this is beyond hazy. The White House seems overwhelmingly focused on encouraging the swift proliferation of electric vehicles and lower fuel prices would presumably hurt the cause — especially considering most analysts have pegged $4.00 per gallon as the point where most people will start rethinking their driving and purchasing habits.
At the close of Wednesday’s formal trading session, WTI decreased by 32 cents to settle at $88.52. Oil prices fell yesterday after the EIA reported that total domestic commercial crude inventories increased by 4 million bbl to 420.6 million bbl. However, earlier in the week, crude prices rallied amid ongoing market concern that global oil supply will remain tight for the remainder of 2023. According to the International Energy Agency’s September 2023 Oil Market Report, production cuts from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries will lead to an oil supply shortfall this fall and winter.
The above represents data from September 14th and shows just how much WTI had jumped within a week's time. But you probably just want to know which parties should be blamed.
While it really depends on who is answering the question, the International Energy Agency (IEA) recently published data claiming that demand is primarily being driven by China and its ever-expanding energy needs. Jet fuel and petrochemical feedstocks (used to support the production of petroleum-based goods) have likewise seen a meaningful increase in demand. The IEA also faulted production cuts stemming from Russia and Saudi Arabia. Russia had been trying to offload as much oil as possible into Europe (keeping energy prices down) before the Russo-Ukrainian War kicked off.
Things may not be as simple as the International Energy Agency would like you to believe. Professional skeptics are also likely to be put off by its member groups, which consist of Western nations and their staunchest allies. Meanwhile, countries like China and India are considered “Association Countries” and do not qualify as full members of the IEA.
None of that guarantees the IEA is working an angle. But it always pays to look into where your information is coming from.
For what it’s worth, oil companies did see reduced incomes in the second quarter of 2023 against the first quarter of 2023. For example, Shell and ExxonMobil both saw their quarterly income shrink by a couple billion a piece. However, the industry on the whole is still poised to make billions and will presumably be the recipient of billions more in taxpayer subsidies by year’s end.
It may not be sufficient to deliver the industry another year of record-breaking revenues. But 2023 started out incredibly strong for the oil sector, despite there being a staggering amount of volatility in the market.
Regardless, average consumers probably don’t care how well the industry is progressing when they’ve noticed that a tank of gasoline has gotten 10 to 20 dollars more expensive than it was at the start of the year. With all the other economic hardships taking place right now, it’s doubtful that there’s much patience for a return to last year’s prices — especially when their own consumption is on the decline.
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