Summary

• Gas prices are moving higher with crude prices
  
• On average a gallon of gas is up $.60 from this time last year
• Most of the gas price is derived from crude oil prices
• Higher gas prices are regressive and hit Trump’s blue-collar Southern base the hardest
• The average American drives 37 miles per day in an auto that gets 22 mpg
• If prices are sustained, the average driver will pay $400 per annum in higher gas prices, wiping out most, if not, all of the individual tax cut
• Wyoming drivers average 60 miles per day and will pay an additional $700 per year in gas prices

As the price of crude marches toward $80 per bbl, and drags up gas prices, the pols are starting to panic.   Midterm elections and high gas prices are a toxic mix.

Surging gas prices could fuel backlash against Trump

The increase in gas prices is felt most heavily by lower-income Americans — especially in the South where people drive the most — who received the smallest share of the tax-cut benefits. So the increase could hit Trump’s blue-collar Southern base the hardest while potentially eroding confidence in the economy and tamping down consumer spending, which accounts for 70 percent of economic output.   – Politico, May 25

Witness President Trump’s tweet over the weekend (completely exaggerated., in our opinion,  as it would be the end of OPEC) and talk of releasing crude from the Strategic Petroleum Reserve (SPR), which would have almost zero medium-term impact on prices.   Note crude oil prices rose today.

Comparative Analysis

We thought it is time to roll out our comparative analytics to illustrate how the $.60 increase in gas prices over the past year will affect the average driver if prices are sustained or move higher from here.

First, a little primer on what drives gas prices.

The retail price of gasoline includes four main components:

• The cost of crude oil
• Refining costs and profits
• Distribution and marketing costs and profits
• Taxes

Retail pump prices reflect these components and the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners  – EIA

Notice  in the graphic about 50 percent of the price of a gallon of gas in 2017 was derived from crude oil.  Given the 23 percent rise in the price of crude since the beginning of the year, we suspect the percentage is now between 60-70 percent.

Average American Driver

The Department of Transportation estimates the average American drives 13,474 miles per year, or about 37 miles per day.  The average fuel economy for cars and light trucks now stands at about 22 mpg.

Cost Matrix

We constructed the matrix below, which calculates the average annual cost increase of various gas price changes and daily miles driven assuming the national average fuel economy of 22 mpg.

As illustrated the $.60 increase in gas prices since last year, if sustained, will cost the average driver around $400, which wipes out the tax cut for most middle class families with two drivers per household.

Play around with the matrix to calculate the increase in your annual gas bill given your miles driven.  You can also make the linear transformation if your mpg differs from 22 mpg with the following:

22/(your average mpg) x Cost 

Red States Hit Hardest 

We also looked at the states with the highest miles driven per year.   Three out five are Red states.

The average driver in Wyoming, for example,  is hit with an almost $700 increase in gas bills.  We also suspect the state’s fuel economy is less than the national average of 22 mpg.  That is real money for the middle class.

Expect America’s withdrawal from the Iran deal, which many believe is driving up prices,  to become a major lightening rod and political liability as gas prices move higher into the November midterms.