What that means for prices

President Joe Biden called on Congress on Wednesday to suspend the federal gas tax as it seeks to curb the rapid rise in pump prices. While experts say that a suspension can provide some immediate relief, it can also keep demand elevated, increasing supply shortages.

Consumers are being hit everywhere with higher prices, which has become a headache for the administration ahead of the midterm elections in November.

But the rise in gas prices is perhaps the most striking – gas stations on every corner declare the price per gallon. The national average is above $ 5 per gallon for the first time ever earlier this month.

It has become an Achilles’ heel for the administration, remarked Tom Kloza of Opis Global, “even though it has nothing to do with policy. [Biden’s] had since he came to power. “

Fuel prices at a Chevron gas station in Menlo Park, California, on Thursday, June 9, 2022.

David Paul Morris | Bloomberg | Getty Images

Biden’s plan calls on Congress to suspend the federal tax on gasoline and diesel fuel for three months, coinciding with the summer season. The federal tax is 18 cents per gallon of regular gasoline, and 24 cents per gallon of diesel.

The president is also asking states to suspend their gas taxes, or find other ways to provide relief to consumers.

A suspension would “give Americans a little extra breathing space as they deal with the effects of Putin’s war on Ukraine,” the White House said in a statement.

“If this bill is signed and enacted – becomes effective – it will help motorists,” said Patrick De Haan, head of petroleum analysis at GasBuddy. But he added that the extent to which relief will be felt will depend on wholesale prices remaining stable. The wording and timing of any potential legislation will also have an impact.

De Haan pointed to New York as an example. The state raised its gas tax, but at a time when fuel prices were on the rise. In the end, consumers did not see much of an impact, as the lower taxes were offset by higher wholesale prices.

However, he said that if this were implemented today, it “would greatly improve the disadvantage”, as petrol futures were recently withdrawn after being above $ 4.

It is unclear whether Biden has the support of Congress for this legislation. The proposal comes at an important moment in the run-up to the midterm elections.

The president has repeatedly targeted oil and gas companies, because what he claims is policies that prioritize profits at the expense of consumers. Last week, he called on refineries to increase exports. The sector, for its part, says the Biden administration has an unfriendly policy, and that it cannot stimulate production, even if it wants to, thanks to problems including labor shortages.

The White House does not control gas prices. More than half the cost per gallon of gasoline is based on the underlying price of oil, which is set on a global basis and has spiked above $ 100.

Jason Furman, professor of economic policy at Harvard and former chairman of the Board of Economic Advisers under President Obama, said a suspension would not have much of an impact on consumers, as it would lead to billions of dollars for oil companies.

“If refineries are already stressed on capacity, the additional demand that will arise from the gas tax holiday will manifest itself almost entirely in the form of higher prices for producers instead of savings for consumers,” he said, before adding: “I do not think that every expert thinks this is a good idea from a distance. “

Goldman Sachs’ global head of commodity research Jeff Currie echoed this point, saying a gas tax holiday would eventually lead to higher consumer demand. A frequently cited phenomenon for commodity markets is that the cure for high prices is high prices. Cutting prices is a temporary measure that does not address the fundamental imbalance in the market.

The national average for a gallon of gasoline went above $ 5 for the first time ever earlier this month. Prices have since declined slightly, with the national average per gallon at $ 4,955 on Wednesday. That’s 36 cents up last month and $ 1.88 more than last year.

The federal gas tax has been 18.4 cents per gallon since 1993.

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