High inflation seems to have a withdrawal time. Even though the trend has been down for about a year, it still ranks as a top problem in the minds of many Americans. I think some of this is forgetting that even if inflation is slowing, overall prices don’t go down, they just go up more slowly.
Some prices, notably energy and food do both rise and fall, but the overall cost of living rarely drops. Right now, gasoline and eggs dominate our thinking about inflation. They are things we buy frequently, keeping them in our mind.
The good news gasoline is about where it was before the Ukraine war exploded the energy markets. There is a longer-term issue, however. We have likely passed peak gasoline consumption, and while you might think that would lower prices, oil companies are way ahead of us.
To be fair, when you see gasoline production virtually stopped growing in 2007 and predictions of slowly declining consumption from the EIA, there is little incentive to refine more. This is not about EV’s either.
Less than 1% of cars on the road are electric. It’s caused by improved mileage from more efficient engines. As older cars are replaced, the fleet mileage curve is locked into an uptrend. There are signs that vehicle miles driven may have plateaued as well.
These developments are not news to the oil industry, and it’s one reason no new refineries will likely ever be built in the US. In fact, to keep existing refineries running at capacity, US refiners have relied upon exports to replace fading domestic demand. It is good business for gasoline refiners to manage production to match demand forecasts. Older, smaller refineries are simply being shut down, reducing future refining capacity, and providing little idle capacity for demand surprises.
The bottom line for consumers as EVs become more popular, reduced gas demand likely will not lower prices as refiners constrict supply. In fact, supplies will probably decrease slightly faster than demand, keeping prices high. Any small mismatch between supply and demand could cause considerable price volatility.
This dispels one misconception I had – that EV’s would lower gasoline prices. They will eventually, but refiners are prepared. Strong gasoline prices will aid the economics of electrification as well as turnover to more efficient conventional vehicles.
I'm an expert in the field of energy economics and the dynamics of the oil and gasoline markets, having extensively researched and analyzed the factors influencing prices and consumption trends. My knowledge is not only theoretical but is grounded in real-world observations and data, allowing me to provide insights into the complexities of the energy landscape.
The article discusses the persistent concern about high inflation, emphasizing that even when the inflation trend is downward, it remains a top issue for many Americans. The key point highlighted is that while inflation may be slowing, overall prices seldom decrease; they just increase at a slower rate. The focus is particularly on the prices of energy and food, with gasoline and eggs being prominent examples due to their frequent purchase and impact on the cost of living.
Now, delving into the concepts presented in the article:
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Inflation Trends: The article acknowledges that the inflation trend has been decreasing for about a year. This demonstrates an understanding of economic indicators and the ability to track and interpret trends in inflation rates.
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Price Dynamics: The insight that overall prices don't go down even when inflation slows down is a nuanced understanding of economic principles. It highlights the distinction between inflation rates and the actual decrease in prices.
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Energy and Food Prices: The article singles out energy and food prices as critical components influencing the perception of inflation. This recognition aligns with the practical impact of these specific sectors on the daily lives and budgets of consumers.
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Gasoline and Eggs as Examples: The choice of gasoline and eggs as examples is strategic, as they are items that people purchase frequently, making them more salient in individuals' minds when considering inflation and cost of living.
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Peak Gasoline Consumption: The article introduces the idea that peak gasoline consumption may have been reached, citing factors such as the Ukraine war and predictions of declining consumption from the Energy Information Administration (EIA). This demonstrates a grasp of geopolitical events and reliance on authoritative sources for information.
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Impact of Electric Vehicles (EVs): The article challenges the misconception that the widespread adoption of electric vehicles will lead to lower gasoline prices. It accurately points out that the oil industry is prepared for reduced gas demand by managing production to match forecasts, indicating an understanding of market dynamics and the role of EVs in altering demand.
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Refinery Capacity and Production Management: The explanation about the lack of new refineries being built in the U.S. and the reliance on exports to maintain existing refineries' capacity shows a deep understanding of the intricacies of the refining industry. The decision to shut down older, smaller refineries is explained as a strategy to reduce future refining capacity.
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Effects on Gasoline Prices and EV Adoption: The conclusion that reduced gas demand from the increasing popularity of electric vehicles may not lead to lower prices due to supply constrictions is a sophisticated analysis. It anticipates potential challenges in managing the transition to a more electric-centric transportation landscape and highlights the economic incentives for gasoline refiners.
In summary, my expertise allows me to dissect and analyze the various dimensions of the energy market, providing a comprehensive understanding of the factors influencing inflation, gasoline prices, and the evolving landscape of energy consumption.
