What is causing the decline in gas prices? It’s not what consumers might think.
The Institute for Energy Research issued a report July 28 that cites “demand destruction” and high inflation as causing gas prices to drop this summer. Specifically, gas prices have exponentially fell from their peak of $5.016 a gallon.
This is a positive side effect of a larger issue — Americans do not feel as if they can afford to purchase gasoline as regularly.
Professor Andrew Kleit of Penn State University.
| Penn State University
“Driving those lower prices that President Biden wants to take credit for is primarily demand destruction, which refers to persistent high prices or tight supplies that eventually lead to a drop in demand,” the IER report said. “In the week through July 8, gasoline consumption dropped by 9.7% to 8.73 million barrels per day, according to data from the Energy Information Administration.
"Aside from 2020, when the COVID-19 pandemic sent the world into lockdown, it marks the lowest seasonal demand in 21 years and the steepest decline this year," the report said. "People can no longer afford it. The spike in gasoline prices made Americans go on a buyers’ strike.”
Andrew Kleit, a Penn State University professor of energy and environmental economics and MICASU faculty fellow, told Lone Star Standard that this is a classic example of supply and demand.
“Gas prices have been declining due to weakening demand caused by the weakening climate,” Kleit said.
AAA reports that as of Aug. 7, gas prices rested at an average of $4.069 per gallon. This is lower than this summer’s peak but still 37% above last year and 70% above the average gas price when Biden was sworn into office.
From July 1-8, national gas consumption dropped by 9.7% to 8.73 million barrels a day. This is the lowest seasonal demand in the last 21 years other than during the pandemic.
IER determined that gasoline demand lowered throughout the summer because “gasoline demand tends to be more elastic during the summer months than the rest of the year. People simply forego trips and family visits when gasoline prices spike.”
The report also noted that even with lower gasoline prices, families “are not taking road trips in the summer of 2022 as daily life has become costlier with high gasoline prices helping to push inflation to 9.1% in June.”
The Wall Street Journal reports that inflation rose to 9.1% in June, which is the single highest inflation rate in over 40 years. The rate dropped to 8.5% for July, according to the most recent report issued Wednesday.
Kleit said this current trend should help slow inflation.
“To the extent energy prices are inputs into many products, lowered energy prices will reduce inflation,” he told Lone Star Standard.
According to AAA, the average gas price in Texas is $3.572 a gallon. The average gas price in Houston is $3.642 a gallon, the average gas price in Dallas is $3.482 a gallon, and the average in San Antonio is $3.497 a gallon.
Kleit’s current research interests are focused on competition in electricity and natural gas markets.
“He is the author or editor of over 70 academic articles and seven books,” his online biography states. “He has worked at several different regulatory agencies, including the President’s Council of Economic Advisors, the Federal Trade Commission and the Federal Energy Regulatory Commission.”
