President Joe Biden’s latest attempt to reduce the price of the pump is unlikely to succeed. However, gas prices are falling anyway and are likely to fall more dramatically in the coming days.
Gas, in fact, gasoline is now averaging $ 4.95 as most drivers paid more than $ 5 last week. Expect even lower prices next week.
On Wednesday, Biden called on Congress to suspend the federal gas tax — 18.4 cents a gallon — for three months, as well as the 24-minute diesel tax. And he called on states to suspend gas taxes, too. States impose different tax levels, with an average tax rate of 31 cents per gallon. Some, including Connecticut and New York, have already suspended the tax.
Biden also urges oil companies to pass on the full benefits of tax cuts to consumers.
Biden’s plan will have to go through Congress, and House Speaker Nancy Pelosi, a Democrat like Biden, is skeptical of the idea. Pelosi said there was no way companies could be forced to pass the tax cut.
Other Biden allies have also spoken out against the idea, in part because it would deplete the fund used to pay for transport infrastructure. The tax cuts will cost about $ 10 billion.
Sen. Tom Carper, a Democrat from Biden’s state of Delaware, wrote on Twitter that “suspending the main way we pay for infrastructure on our streets is a short-sighted and ineffective way of providing relief. “We need to explore other options for reducing energy costs.”
Another problem is that temporary tax cuts can only extend the trajectory of high prices, because demand will not fall enough to cause market prices to fall.
“It’s a nice press release, but there’s no way Congress can pass it before July 4, which is obviously the president’s goal,” wrote James Lucier, an analyst at Capital Alpha Partners, which is investigating the policy implications. in investments.
In addition, a federal tax holiday would probably not provide much relief to drivers.
“If the federal gas tax was suspended for the rest of the summer, driving 12,000 miles a year with a car averaging 22.8 miles per gallon would save only about $ 20,” wrote JP Morgan’s general Natasha. Kaneva.
That said, petrol prices are likely to fall independently. Oil prices fell from their recent high of more than $ 120 a barrel, with West Texas Intermediate crude falling 2.4% to $ 106.90 on Wednesday.
“There is a growing risk of recession in the US and elsewhere, ‘which would limit the outlook for energy demand,'” Peter McNally, head of the global industry for industrial materials and energy at Third Bridge, said in an email to Barron’s. In addition, the oil supply crisis may ease somewhat as India and China buy Russian crude, boosting overall global supply.
As far as gasoline is concerned, there are already some indications that consumers are consuming less of it as prices rise. Demand for gasoline in the United States fell to 9.1 million barrels last week from 9.4 million last year, according to the Energy Information Administration. And the data from the energy data provider OPIS were reviewed by The Wall Street Journal shows that demand at service stations is reduced by 8.2% on an annual basis.
The latest drop in crude oil prices has not been fully filtered into petrol prices. But wholesale gasoline prices are starting to fall more dramatically, falling from 40 cents to 60 cents in various parts of the country. It will take several days for these drops to appear at the stations. When they do, consumers may not feel like they have the “vacation” Biden wants, but they can at least get some relief.
Write to Avi Salzman at firstname.lastname@example.org