Despite all the financial woes that have been highlighted this year, including a stock market crash, higher mortgage rates, and fears of recession, none has affected the average American as much as rising gasoline prices.
For the first time in history, the price of a gallon gas reached $5.00 this week. This is an increase of more than 60% over the previous year.
Charles Wilson, President of GM (GM), famously stated that “What is good for our country is good for General Motors” in 1953.
America still relies on gasoline, despite being 69 years old.
Americans are shocked by the rising gas prices. This is a fact President Biden acknowledged to the AP on Thursday if you want to get a direct gauge of what people will talk about at the table, and whether things are going smoothly, then it’s the price of food and gasoline at the pump. “I mean at the pump.
What can one do if gas prices are too high?
There are three options: You can buy an electric vehicle. Drive less. Stock of Exxon Mobil (XOM).
How did we get here?
Be patient before you start to scream at me. Flip offsets may not be realistic or immediate options. However, you should consider all three. I’ll be back shortly.
Let’s first talk about how we got to this point.
Since March 2020, when COVID was fully operational, the oil market has been volatile. Over fears of a global economic collapse, crude oil prices went down in the following month.
The price of crude oil has risen steadily since then to $108 per barrel.
Why? The reason is that oil demand is rising as the world recovers from the pandemic. However, there are still frictions on the supply side such as shipping issues and labor shortages. Russia’s invasion in Ukraine is another example.
However, there is another problem that has been causing havoc on the oil markets and gas prices: the transition away fossil fuels.
Glenn Richey is the research director at Auburn University’s Center for Supply Chain Innovation. He says that corporations in the oil and gas sector are “playing it safe”. “They are afraid of the government pulling the rug out from under their feet and they don’t want more exploration or advanced production.”
Biden sent a Wednesday letter to the big oil companies stating that “in a time war, refinery profit margins much higher than normal being passed directly onto American households is not acceptable.” The American Petroleum Institute wrote back to President Biden to refute his claims. Biden is aware that the price of gasoline could determine his political fortunes and those of his party.
Many of these factors are beyond the control of the President or the oil companies. Prices are influenced by OPEC, COVID, Putin and COVID. Prices can stay high for a while, go up or down depending on who you ask.
Three solutions for one problem
What can an American do?
The first suggestion is to reduce your driving. Yes, that’s what I mean.
The U.S. is a little entitled, aren’t we? Gas prices in the United States are lower than many other countries. Gas in Hong Kong costs $11 per gallon. In Norway, it costs more than $10 per gallon. The rest of Europe spends $7-$8.
Number two: Buy an electric vehicle. This is where the math changes: Gas prices go from $2 to $5.
Tesla (TSLA), recently increased prices. This could indicate higher demand and pricing power or supply chain problems and higher input costs. The F-150 Lightening All-Electric Ford Truck (F-150) is selling well, so expect to pay more than the local Ford dealer’s sticker price. EVs don’t provide a solution.
Kenneth Medlock, a Rice University energy expert and professor, says, “We must remember, it is not low income households who are buying electric cars.” They are not yet at this price point. It’s not really a win except for households with higher incomes and upper middle class.
Threerd, purchase Exxon stock
This refers to all energy investments, which includes other oil stocks and ETFs. (Hint) Biden’s letter was sent to Exxon (CVX), Chevron (BP), Shell(SHEL), Marathon, MRO), Valero/VLO, Phillips (PSX).
Exxon shares are up 40%, even with this week’s 14% slide; the S&P 500 is down more than 20%.
America must reduce its dependence on gasoline. It is amazing to see how fragile that relationship can be. The system can quickly become stressed in a matter of days or weeks.
I can still remember the 1970s gas lines and rationing. It got very ugly fast. The same happened in New York City in October 2012, after Superstorm Sandy.
There are many other options, as we have already mentioned.
One thing is certain: $5 gas is not good for America.