- Alex Wong/Getty Images
- Democrats are attacking President Donald Trump for the recent surge in gasoline prices.
- They say Trump’s decision to pull out of the Iran deal is hurting American consumers at the pump.
- But much of the increase was caused by a simple supply and demand rebalance after oil prices crashed in 2015 and 2016 – not Trump’s policies.
Standing in front of a Washington, DC, Exxon station Wednesday, Senate Democrats attempted to pin a recent surge in gas prices on President Donald Trump.
“That’s right. Whatever meager benefit working families might have seen from Trump’s tax scam for the rich is being wiped out by the gas prices that the president is responsible for,” Senate Minority Leader Chuck Schumer said.
Democrats blame Trump’s decision to pull the US out of the Iran nuclear deal on the gas price uptick, arguing he should pressure the Organization of the Petroleum Exporting Countries, or OPEC, cartel to produce more and bring down prices.
But their allegation misses the mark. Instead, a macro-level adjustment of global oil supply and demand boosted prices from their lowest point in decades – and it’s tough to lay much of the blame at Trump’s feet.
Supply cuts and a demand boost helped raise prices
To explain the energy price upswing of the past few years, it’s important to understand the reason for the price crash from 2014 to 2016.
In other words, the massive supply growth and slowing demand forced producers to cut prices in order to sell their product. In turn, energy prices crashed.
The weekly average price per gallon of regular unleaded gasoline bottomed at $1.72 in February 2016, according to the US Energy Information Administration, the lowest since January 2009. The West Texas Intermediate benchmark for US crude oil similarly bottomed at $26.19 on February 11, 2016, the lowest point since 2003.
But in the past two years, producers have rebalanced this equation. Significantly, the nations that make up OPEC, as well as Russia, put caps on the amount of oil their members can produce – helping to reduce supply. Francisco Blanch, a Bank of America Merrill Lynch commodity strategist, said recent data showed that OPEC produced 1.5 million fewer barrels per day in the first quarter of 2018 compared to the fourth quarter of 2016.
In addition to the OPEC cuts, Venezuela’s ongoing political strife has significantly limited output, and the amount of shale drills operating in the US declined as their profits squeezed.
Blanch also highlighted the growing thirst for oil due to a stronger global economy even as prices go up.
“Importantly, the stronger GDP growth backdrop is lending support to oil consumption around the world despite the rising crude prices,” he wrote.
While the larger backdrop for oil has pushed up prices, Trump’s decision to reimpose sanctions on Iran could still hurt consumers at the pump.
Goldman Sachs estimated that anywhere from 250,000 to 500,000 fewer barrels of crude oil on the market per day. The firm said prices for the European Brent crude oil benchmark could jump as much as $7 a barrel.
Based on the relationship between Brent prices and gas prices, Business Insider estimated that the $7 per barrel increase could boost gas prices by 16.8 cents per gallon. While that’s a significant boost, it’s just 16% of the rise since the price of regular gas bottomed.
Energy economics becomes a political football
Schumer and other Democrats not only want Trump to try and pressure OPEC into boosting production – they also think US oil companies should pitch in as well.
Sen. Joe Manchin, a Democrat from West Virginia, did not blame Trump directly but agreed with other Democrats that oil companies should use savings from the new GOP tax bill to cut down prices at the pump.
“I’m not critiquing anybody. I’m not blaming anybody. But someone ought to answer to the American people why did it go up when we have so much energy in the United States of America,” Manchin told Business Insider. “And the tax cut was helping these corporations at a tremendous financial assistance and if they wanted to really help the average person, that’s a way to help the average person in West Virginia – cut the gas prices.”
In a floor speech on Wednesday, Schumer also urged Trump to lean on oil executives.
“At the same time, our oil companies get huge tax breaks, and they raise prices on everybody?” he said. “How is that helping the middle class? Why isn’t President Trump jawboning them, like he does on other issues? Where is he?”
On the other hand, GOP lawmakers dismissed the idea that Trump is to blame for the run up or that his actions could help bring down costs.
GOP Sen. Bill Cassidy, a member of the Senate Natural Resources Committee, told Business Insider that Democrats shouldn’t blame Trump for the increase but should point the finger at foreign oil producers instead.
“Well we could say if Russia and OPEC didn’t decide to restrict production, prices would be lower,” Cassidy said.
Sen. Jim Risch, a Republican also on the committee, told Business Insider that the increase is just simple supply and demand.
“It’s a free-market system,” Risch said. “Prices will go up and prices – I guarantee it – prices are going to come down. Are they going to hold another press conference and give him the credit for it? I doubt it.”