Summer Driving and Gasoline Prices

Dean Foreman
Posted May 1, 2019

With summer driving season almost here, nationwide average gasoline prices were $2.88 per gallon as of April 30, according to the American Automobile Association, identical to what they were one year ago when adjusted for price inflation. This good news for consumers is due, at least in part, to record-breaking domestic oil production, which has put downward pressure on global prices for crude oil, the main factor in determining prices as the fuel pump.

While the current price may be the same when you pull up to pump, some notable things have changed behind the scenes.

For one thing, three states – Alabama, Arkansas and Ohio – have increased their gasoline taxes so far in 2019. These three are among 30 states that increased their gasoline taxes in the past decade. The main reason for raising taxes has been that transportation infrastructure construction and maintenance costs – and therefore state and local spending needs – have generally grown faster than motor fuel tax revenues.  

The resulting shortfall in motor fuel tax revenues generally gets attributed to the rise in light-duty vehicle fuel economy, which is up more than 20 percent over the past decade according to Oak Ridge National Labs. However, 2018 gasoline demand of 9 million barrels per day (mb/d) tied that of 2007 as the highest on record.

The real reason why states have quietly been able to raise motor fuel taxes is because of lower oil prices, a direct result of the U.S. energy revolution. To be clear, gasoline prices have generally tracked those of crude oil, which remains the top input cost per the U.S. Energy Information Administration (EIA), currently responsible for 57 percent of the price per gallon at the pump. Although oil prices have risen in the past couple of months, they’re still nearly half of what they were in April 2010, as shown below, and the EIA sees this holding through 2020.

As U.S. oil production has risen, the reduction in U.S. net imports of petroleum is another thing that has changed and decreased U.S. dependence on imported oil and the monetary and geopolitical costs that go with it. In April 2010, the U.S. was a net importer of 10 mb/d of crude oil and refined products. One year ago, we celebrated these net imports falling to 2.7 mb/d. Entering April 2019, U.S. petroleum net imports were just 1.3 mb/d. And if the EIA’s short-term energy outlook projections of domestic oil production growth prove to be correct, the U.S. could become a petroleum net exporter before the end of this year.

The key point is that the growth in domestic liquids production has helped keep our fuel prices low and provided the headroom for states to raise gasoline taxes without undermining affordability at the pump – which is a remarkable change. 

As domestic oil production has helped enable lower gasoline prices, Americans have consequently spent less on gasoline and other motor fuels. According to the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, the average U.S. household’s percentage of total expenditures on gasoline and other motor fuels hit a decade low at 3.3 percent of total expenditures, or just less than $2,000 per year. In 2008, the average household’s motor fuels expenditures accounted for 5.4 percent of its total outlays, or more than $3,200 when adjusted for price inflation.

In just a decade, the average U.S. household saw a 38 percent reduction in its spending on motor fuels, which meant an increase in the typical household’s total spending power for other needs. Moreover, the benefits of lower gasoline expenditures have extended across all household income segments, which is a key way in which the U.S. energy revolution has helped all Americans.

EIA’s outlook projects robust growth of domestic oil production that could:  

• Help U.S. states so that they may continue to fund the building and maintenance of roads, bridges and other transportation infrastructure;
• Support downward pressure on prices of fuels that are essential to our daily lives; and,
• Enable so many U.S. households to devote their precious disposable income to other needs.