Gas prices are falling because people can’t afford to buy it
President Biden and other liberal politicians have been taking credit for falling prices at the pump, but gasoline and diesel prices are only falling because people can’t afford to buy the fuel in the first place. As a result, the demand for fuels has fallen, allowing supplies to increase, causing prices to fall from their $5-highs.
Prices fall from $5 highs
Gasoline prices peaked at $5 per gallon in mid-June and came down to $4.50 in mid-July. Prices are still $1.34 per gallon higher today than they were a year ago. The unaffordable gas prices have forced drivers to curb their use of gas, which is called “demand destruction” in economic jargon.
This isn’t just idle speculation, as analysts at Sevens Report Research wrote: “these data points continue to suggest high prices are resulting in demand destruction among consumers as inflation continues to pressure personal balance sheets.”
Demand is Down
Data from the U.S. Energy Information Administration show summer gasoline demand is about 774,000 barrels per day lower during mid-July 2022 than in mid-July 2021. Gasoline demand was also higher in May than in mid-July, which is usually the height of the summer driving season.
Falling demand allowed gasoline inventories to increase by 3.5 million barrels last week, government data showed, far exceeding analysts’ forecasts in a Reuters poll for a 71,000-barrel rise. Stocks remain below their five-year average, but depressed demand is allowing inventories to recover.
Demand destruction is the worst way to bring down prices
Demand destruction is the worst way to reduce gasoline prices because it means that high prices force American families to make tough decisions about putting gas in their tanks or buying groceries, medicine, or other essential household items.
High energy prices simply mean there is less money for families to spend in other sectors of the economy, which is one reason we are almost certainly in a recession. For President Biden to take credit for prices coming down under these circumstances shows that the administration is out of touch with how basic energy markets work.
In contrast, the best way to bring down the price of gas is to increase supply. Increasing supply, especially by developing American oil resources and refining them at home, stimulates the economy and helps domestic consumers.