President Joe Biden’s latest effort to lower the price at the pump probably isn’t going to succeed. But gas prices are heading down anyway, and they’re likely to fall more dramatically in the coming days.
Gas, in fact, gasoline is now averaging $4.95 after most drivers were paying more than $5 last week. Expect even lower prices in the week ahead.
On Wednesday, Biden called on Congress to suspend the federal gas tax—18.4 cents a gallon—for three months as well as the 24-cent diesel tax. And he asked states to suspend their gas taxes, too. States impose varying levels of taxes, with an average tax of 31 cents a gallon. A few, including Connecticut and New York, have already suspended the tax.
Biden is also demanding that oil companies pass the entire benefit of the tax cut along to consumers.
The Biden plan would have to get through Congress, and House Speaker Nancy Pelosi, a Democrat like Biden, is skeptical of the idea. Pelosi has said there’s no way to force companies to pass the tax cut along.
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Other Biden allies have also spoken against the idea, in part because it would deplete the fund used to pay for transportation-infrastructure projects. The tax cuts would cost about $10 billion.
Sen. Tom Carper, a Democrat from Biden’s home state of Delaware, wrote on Twitter that “suspending the primary way that we pay for infrastructure projects on our roads is a shortsighted and inefficient way to provide relief. We should explore other options for lowering energy costs.”
Another problem is that temporary tax cuts can simply extend the trajectory of high prices, because demand won’t drop enough to cause market prices to fall.
“It makes for a nice press release, but there is zero chance that Congress will enact it before July 4, which is apparently the president’s goal,” wrote James Lucier, analyst at Capital Alpha Partners, which researches the impacts of policy on investments.
What’s more, a federal tax holiday probably wouldn’t give drivers much relief.
“If the federal gas tax was suspended for the rest of the summer, someone who drives 12,000 miles a year in a car that averages 22.8 miles per gallon would only save about $20,” wrote J.P. Morgan strategist Natasha Kaneva.
That said, gasoline prices are likely to come down regardless. Oil prices have tumbled from their recent highs above $120 a barrel, with West Texas Intermediate crude falling 2.4% to $106.90 on Wednesday.
There’s an increasing risk of recession in the U.S. and elsewhere, “which would curtail the demand outlook for energy,” noted Peter McNally, global sector lead for industrials materials and energy at Third Bridge, in an email to Barron’s. In addition, the oil-supply crunch may be easing somewhat as India and China have been buying Russian crude, boosting total global supply.
As for gasoline, there’s already some evidence that consumers are using less of it as prices rise. U.S. gasoline demand was down to 9.1 million barrels last week from 9.4 million a year ago, according to the Energy Information Administration. And data from energy-data provider OPIS reviewed by The Wall Street Journal shows that demand at gas stations is down 8.2% year over year.
The latest drop in crude prices has not fully filtered down to gasoline prices. But wholesale gasoline prices are starting to fall more dramatically, with drops of 40 cents to 60 cents in various parts of the country. It will take several days for those drops to show up at stations. When they do, consumers may not feel like they’re getting the “holiday” that Biden wants, but they might at least get some relief.
Write to Avi Salzman at [email protected]