U.S. consumers are on pace to spend 36 percent more than two years ago on motor fuels.
Based on projections for pump prices and gasoline demand in the United States, consumers will spend more than $400 billion on motor fuel by the end of September on an annualized basis, up more than 36 percent from two years ago. In fact, total expenditures during this timeframe could possibly exceed levels seen in 2014, when oil prices were above $100 per barrel for a majority of the summer. Even though pump prices are forecast to average 17 percent lower than four years ago, the 500,000 barrel-per-day increase in demand since then inflates total expenditures.
It is unclear how higher prices will affect the overall U.S. economy and consumer fuel demand. Higher prices for gasoline, or other refined products such as diesel, are considered an added tax on drivers and businesses. They can induce inflation and lead to more interest rate hikes, which can slow the overall economy. There is anecdotal evidence that some motorists plan to change their driving habits over the summer as fuel costs rise as a percentage of disposable income. Lower-income populations, which spend about 8 percent of their take-home pay on gasoline, have been disproportionately affected. Deutsche Bank analysts said that the bottom 20 percent of the U.S. income distribution has already seen rising gasoline prices fully negate the benefits of last year’s tax cuts. If average pump prices rise to $3.50 per gallon and remain at that level, the average consumer would also experience fuel costs fully offsetting tax cut gains.
Since World War II, most economic recessions in the United States have been preceded by oil price increases.
Given that OPEC and its non-OPEC allies will likely remain committed to continue reducing supply for the rest of this year and geopolitical uncertainty is deepening, pump prices are expected to remain near current levels, or even rise further.
Since World War II, most economic recessions in the United States have been preceded by oil price increases, with the most infamous downturn occurring during the 1973-74 Arab Oil Embargo. In 2007-08, the price rise to the all-time record of $147 per barrel contributed to—along with the housing crisis—the deepest recession since the Great Depression.
Clarification: This article was updated on June 11, 2018 with revised figures on consumer gasoline spending.