The U.S. Oil and Gas Association blasted President Joe Biden and his apparent economic illiteracy for demanding that gas stations bring down their prices.
The national average price of gas in the United States is currently $4.80 per gallon, according to AAA, with the national average temporarily surpassing $5.00 per gallon last month. Fuel costs have risen since the Russian invasion of Ukraine — yet the Biden administration has pursued policies such as nixing expansions to the Keystone XL Pipeline last year and delaying new drilling permits.
Meanwhile, Biden has repeatedly exhorted oil companies to cut into their own prices and increase production.
“My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril,” Biden repeated via Twitter on Saturday. “Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.”
The U.S. Oil and Gas Association — a petroleum industry advocacy group — responded to the commander-in-chief by affirming that they are “working on it.” The organization wished Biden a happy Fourth of July and asked him to “please make sure” the White House intern who posted the tweet “registers for Econ 101 for the fall semester.”
Working on it Mr. President. In the meantime – have a Happy 4th and please make sure the WH intern who posted this tweet registers for Econ 101 for the fall semester… https://t.co/6yLpbDDRKc
— US Oil & Gas Association (@US_OGA) July 3, 2022
Crude oil accounts for 59% of prices at the pump, with refining, distribution, and taxes accounting for the rest of the cost consumers face, according to a recent report from the Federal Reserve Bank of Dallas. Prices charged by gas stations have recently dropped at a slower pace than the price of oil — although corporate greed is not necessarily the culprit.
“One potential explanation is that station operators are recapturing margins lost during the upswing, when gas stations were initially slow to increase pump prices,” the Dallas analysts explained. “The reluctance to lower retail prices also likely reflects concerns that oil prices — and, hence, wholesale gasoline prices — may quickly rebound, eating into station profit margins.”
Gas stations earn a slim 1.4% margin on their fuel, according to industry research company IBISWorld, placing them among the lowest margin industries in the United States. Indeed, a Barron’s analysis of data from more than 135,000 gas stations showed that although profits “briefly jumped” after the Russian invasion, the industry is still recovering from earlier profit shortfalls that arose due to supply chain issues. Gas stations — which Barron’s characterized as “minnows in the gasoline food chain” — are now suffering as customers pass on snack purchases due to inflationary pressures.
As the cost of gas has fallen slightly, altered consumer behavior may also be a cause for higher prices at the pump.
“Another possible reason for this asymmetry is consumers’ tendency to more intensively search for lower pump prices as gasoline prices rise than when they decline,” the Dallas analysts continued. “This diminished search effort provides further pricing power to gas stations, causing prices to fall more slowly than they rose. This has prompted researchers to liken the response of gasoline prices to higher oil prices to a rocket — and the response to lower oil prices to a feather.”
Beyond gas station prices, analysts at JPMorgan Chase are warning that oil prices could triple to $380 a barrel as Russian officials continue their invasion of Ukraine. “It is likely that the government could retaliate by cutting output as a way to inflict pain on the West,” analysts wrote. “The tightness of the global oil market is on Russia’s side.”