The worst inflation in the United States in 40 years and the world's energy supply shortage caused consumption costs to remain high, which has led to continued rise in gasoline prices in the United States, which has become an unbearable pain for Americans.

Source: Economic Daily

This is a gas station oil price tag taken on Washington , the capital of the United States on May 11. Photo by Xinhua News Agency reporter Liu Jie

The worst inflation in the United States in 40 years, and the world's tight energy supply has caused consumption costs to remain high, causing the price of gasoline in the United States to continue to rise, which has become an unbearable pain for Americans. Although the Biden administration has tried every means to lower gasoline prices, it has achieved little success at the moment. The world's energy supply tension will continue, and the outcome of the conflict between Russia and Ukraine is still unknown, but the global energy landscape has undergone profound changes.

In recent days, the national average gasoline price in the United States has hit a record high. In , California, , the average price per gallon of gasoline is $6.05, far higher than $4.135 a year ago; all gasoline in , Washington, , gasoline is sold out, and some gas stations currently only have diesel. The U.S. Energy Information Administration (EIA) shows that the average gasoline expenditure of US households in 2022 will reach US$2,945. If gasoline prices continue to rise next year, U.S. household gasoline spending may increase to $5,000.

Gasoline prices continue to rise, which has become an unbearable pain for Americans.

The main reason for the continued rise in gasoline prices is two points. First, the United States has encountered the worst inflation in 40 years; second, the consumption costs remain high due to the tight energy supply in the world. West Texas light crude oil has remained the same price as Brent crude oil for the first time in years, both above $110 a barrel.

Although the Biden administration has tried every means to lower gasoline prices, including releasing strategic oil reserves, requiring Gulf oil-producing countries to increase production, and intending to relax sanctions on Venezuela and Iran in exchange for more oil supply, the results are not very effective at the moment. Seeing that the US midterm election is imminent, if the rise in gasoline prices cannot be curbed, the prospects for the midterm elections are worrying.

Some people estimate that in the United States, assuming that the price of crude oil per barrel of increases by $10, the price of gasoline per gallon will rise by 25 cents, and for every 1 cent increase in gasoline, U.S. household spending will decrease by $1 billion. Data shows that although the US consumer market remains strong, the University of Michigan consumer confidence index continues to decline. Among them, the consumer confidence index in May was 58.4, lower than 65.2 in April, and much lower than economists' expectations. It can be seen that gasoline prices have a great impact on the US consumer market and economy and society.

Because oil prices are of great importance, it is reported that US President Biden has to "get rid of his past grudges" with Saudi Arabia and will meet with Saudi Crown Prince Mohammed bin Salman. The two of them had called out from a distance many times, but because they were not speculative, they once stopped answering the phone. At the same time, the US Senate also cooperated to play a "double act" - passing the "Ban Oil Production and Export Cartel Act" (NOPEC), trying to put pressure on OPEC.

White House has been urging Saudi Arabia and the UAE to increase crude oil production. Especially since the conflict between Russia and Ukraine, the United States and the European Union have tried many times to convince OPEC to increase production but failed, and instead look for alternative oil and gas resources around the world.

The world's energy supply tension will continue, and the outcome of the conflict between Russia and Ukraine is still unknown, but the global energy landscape has undergone profound changes. The EU is determined to "decouple" from Russia's energy supply, which may take several years to transition, but the relevant impact has begun to emerge.

At present, the United States' liquefied natural gas is constantly entering the European market, but it also faces many difficulties when it makes a fortune.

First of all, the conflict between Russia and Ukraine has destroyed the global crude oil and refined oil supply chain, especially the US and Western buyers no longer import Russian vacuum gas oil and other refined intermediate products, and the global refinery production capacity has been affected to varying degrees. Currently, the production capacity of US refineries is the lowest since 2015. Local analysts said that the continuous highs of fuel prices in the United States are due to insufficient refining capacity, so there is no quick solution. In the past two years, the United States has permanently closed its refining capacity of about 1 million barrels per day, with some of which are converted into biofuel production sites.

According to data from the U.S. Energy Information Administration, the U.S. refining capacity in 2021 was about 18 million barrels per day, the lowest level since 2015, and production capacity continued to decline this year. In terms of inventory, statistics as of early May showed that distillate oil inventories in the United States, including diesel, were 104 million barrels, about 23% lower than the five-year average, and the lowest level since 2008. Market insiders believe that the extremely low inventory of oil products and shortage of refining capacity in the United States will trigger a fuel crisis in the summer.

From a global perspective, there is a general shortage of refining capacity. Saudi Crown Prince Salman believes that insufficient investment in global refining capacity is one of the key drivers of rising prices of gasoline, diesel and aviation fuel.

Secondly, how the United States solves the problem of inflation has attracted much attention. The Biden administration has made solving inflation a top priority in its domestic policy. At present, the Biden administration seems to be betting on hikes . In addition, the U.S. government has also tried to curb inflation by lowering oil prices and improving supply chains, but with little success. For example, the United States currently releases 1 million barrels of strategic oil reserves per day, accounting for about 1% of global demand, with a total release of 180 million barrels. With the two previous releases, the United States is expected to release a total of 260 million barrels of crude oil. This unprecedented big move has not curbed the rise in oil prices.

According to the U.S. Department of Labor data in May, the U.S. inflation rate in April was 8.3%, a slight decrease from 8.5% in March, but is still at a 40-year high. Federal Chairman Powell recently stated that he would continue to tighten the monetary policy until he "sees inflation to fall back in a clear and compelling way." Record-breaking diesel and gasoline prices are threatening economic growth, further increasing inflationary pressures in the United States. As diesel prices affect various parts of the economy, the Fed's fight against inflation has become more complicated, as larger rate hikes can lead to worsening economic activity and household spending and ultimately lead to a recession.

Most economists and analysts believe that it is difficult to eliminate the most serious inflationary difficulties in 40 years. Once the Fed uses too much medicine, it may lead to the economy falling into the risk of stagflation or even recession. Goldman Sachs Group issued a warning urging business community and consumers to prepare for the prospect of a recession in the U.S. economy. Some analysts also believe that the effect of suppressing inflation by continuously hike interest rates will take a long time to show, because monetary policy has a lag in the economic impact, usually between 9 months and 1 and a half years, so the US economy may fall into recession in 2023. However, if the US economy turns downward, oil demand will also be suppressed.

Once again, there is great uncertainty in global oil supply, and oil prices are expected to run at high levels. This year, the U.S. oil and natural gas exports have hit a record high, and major energy companies have made a lot of money. While helping to alleviate energy tensions in Europe, U.S. own inventory has been shrinking. Data shows that since July 2020, U.S. oil inventories have dropped sharply by 421 million barrels. The United States became the net exporter of for crude oil and fuel in April this year, with a daily import and export difference of 3 million barrels, with most of the oil coming from stocks, so inventories have now dropped to their lowest level since 2008.

Lower inventory will affect the US's ability to fill the Russian oil gap. However, what is more worthy of attention is the link between the growth of U.S. oil exports and the rise in its domestic fuel prices.

Although oil prices have been rising, domestic oil production in the United States has slowly increased, and the reason is intriguing. Some analysts believe that despite the rising prices, investors are still skeptical of the oil industry, resulting in the latter lacking enough funds to invest in new equipment to cope with higher demand. The world's oil giants are busy buying back stocks and paying special dividends, but they are not interested in increasing production.

In addition, some people attribute the sluggish investment in the US oil industry to the Biden administration's climate policy. One-sided pursuit of new energy is also one of the reasons for the great uncertainty of current energy supply and demand. (Source of this article: Economic Daily Author: Weng Donghui)