Summer Driving Season – Questions and Answers

Mark Green
Posted May 27, 2021

As Americans flock to the roads this Memorial Day weekend, let’s consider the key factors that impact fuel costs, what it means for U.S. consumers and the best paths to ensure affordable, reliable energy going forward. Four questions and answers:

Historically speaking, where are fuel prices today?  

While retail gasoline prices are climbing from winter low points, averaging $3.112 per gallon currently, that’s comparable with prices in May 2019 ($2.909) and May 2018 ($3.039) and well below levels this time of year from 2011 to 2014, according to the U.S. Energy Information Administration (EIA).

Yet, fuel prices are increasing, as they’ve historically done with the arrival of the summer driving season due to increased consumer demand. While today’s advanced fuels and innovative technologies are helping American consumers benefit from more-fuel-efficient vehicles that drive farther and run cleaner, consumers take notice when prices rise at the pump.  

What is driving fuel prices higher?

In a word, demand. And in another word, supply.

The world is recovering from the pandemic, plus more people are returning to their places of work – as well as traveling for vacations and other purposes (Fuel Saving Tips). There will be 60% more people traveling 50 miles or more from home this year compared to last year, according to AAA. Earlier this month EIA increased its forecast for summer gasoline demand by 100,000 barrels – or 4.2 million gallons – per day over its April forecast.

The increased demand is pushing gasoline prices higher. This weekend, they’ll be at their highest levels since 2014, Patrick DeHaan, GasBuddy.com’s head of petroleum analysis, told Fox Business.

It’s also supply. Our industry, along with the rest of the country, is recovering from impacts of the pandemic, which dramatically cut petroleum demand leading to slowing domestic oil production. Now demand is returning, and production must keep pace, as API Chief Economist Dean Foreman noted in a recent blog post. In this podcast, Foreman discussed demand pressures on fuel prices:

“It really is supply and demand that’s driving that. I mean, if you think of the way it's played out, the fact that we grew domestic oil production over the last decade really did break the stranglehold that OPEC and Russia together had [previously] over oil prices. And the U.S. ability to control its own destiny there has just cushioned U.S. consumers. … Crude oil prices, they are the largest single input into making gasoline, if we think about fuel prices, right? And currently, the EIA would estimate the crude oil is about half the cost to make gasoline and diesel fuel. So, to the extent that oil prices rise, it could affect U.S. household costs for transportation for driving and for flying.”

What can be done to help consumers?

Again, retail prices heading into this Memorial Day are similar to late-May prices the past few years. Since mid-2014, consumers have saved money on transportation costs – largely because strong domestic crude oil production put downward pressure on global crude oil costs, which was reflected in pump prices.

Because oil is traded globally, robust domestic production puts downward pressure on global crude costs, and consumers benefit. Thus, we need policy approaches that safely develop domestic reserves, on and offshore, so that U.S. production once again impacts the global crude market.

Let’s note that strong domestic production also is critically important to U.S. energy security. Thanks to rising domestic production, the U.S. in 2020 became a petroleum net exporter on an annual basis for the first time since 1958. But, because of less trade and lower domestic production compared to pre-COVID levels, the U.S. returned to being a petroleum net importer earlier this year. Put simply, when the U.S. is a net importer of petroleum, it is reliant on foreign suppliers and less energy secure.

So, the question is, can’t the U.S. just produce more oil? Historically, it has with more development – and relatively quickly as supporting prices increased, a key benefit of the U.S. energy revolution. But with the economic impacts of the pandemic, drilling and capital investment have remained low. In fact, industry-wide capital investment in the first quarter of this year was the lowest for any quarter since 2008 (chart below). It’s a global phenomenon, not limited to the U.S., making sound energy policy all the more important.

Is the U.S. on the right energy policy path now?

Many of the Biden administration’s energy policies hurt our industry’s ability to meet growing demand with domestic supply produced by American workers.

The administration’s pause in new federal natural gas and oil leasing is dangerous to future production. If the pause becomes a permanent ban on leasing and development, an OnLocation analysis for API projects significant impacts on domestic production, U.S. jobs and energy security. The economies of producing states such as New Mexico would be significantly impacted.

Tax increases under discussion to target the industry could increase production costs and decrease industry’s ability to invest in new exploration and development – both potentially significantly affecting domestic energy production.

Cancellation of critical infrastructure, such as the Keystone XL pipeline, and an overall policy posture that’s not supportive of new pipelines have impacts on energy delivery and ultimately, consumer costs. API President and CEO Mike Sommers:

“American energy policies should focus on increasing domestic production to help U.S. workers, consumers and the economy. Natural gas and oil companies anchor entire communities – supporting thousands of local businesses while the federal government itself takes in almost $150 million, from natural gas and oil, every single day.”

Sommers continues:

“Today, more U.S. production could put downward pressure on gasoline prices – and reduce reliance on imported energy from foreign nations that are hostile to American interests. That, in turn, helps support more American jobs, strengthens national security, and generates more government revenue for local communities across the country.”

API President and CEO Mike Sommers on the connection between energy policy, fuel supply, demand, gas prices and the summer driving season:

Unfortunately, many Americans take little notice when energy is abundant and relatively inexpensive, as it has been since the advent of the U.S. energy revolution.

Now, with the pandemic’s effects on the economy and domestic energy production playing out, Americans are beginning to notice the importance of planning for energy abundance and security through strong domestic production – as well as the need to ensure that we have the energy infrastructure to deliver supplies where they’re needed. The administration’s energy policies so far fall short on both points.