The news today is that gasoline is now $2.38 cents per gallon on average inside the United States, the highest price gasoline has reached in the last 19 months. It is one of the best kept secrets in economics but, despite societies hatred for rising gas prices, the rise of gasoline is actually a positive sign for many of America’s largest businesses.
Before we get to the price of gasoline in April 2017, you have to understand a global trend over the last several years. Even though green and/or renewable energies aren’t exactly main stream yet, the continued growth of this industry has put a noticeable dent in the oil market. So much so that OPEC and oil manufacturer’s across the globe have started to pull more oil out of the ground than they can sell on a daily basis – about 55 million barrels a day to be exact.
As reported by Middle East Eye on December 10th 2016, “OPEC and non-OPEC producers on Saturday reached their first deal since 2001 to curtail oil output jointly.” Adding that “more than two years of low prices that have overstretched many budgets and spurred unrest in some countries,” directly leading to OPEC’s decision. The event marked the first time in the last 15 years that OPEC countries agreed to cut their oil production.
Around the end of November, before OPEC implemented their decision to reduce oil output, Bloomberg Markets suggested that in the wake of Donald Trump victory in the US election, “the price of gasoline in the United States could rise as much as 35% by March 2016.” In retrospect this figure may have been a bit of an over statement, but in April 2016 the price of gas is still higher than is has been in 19 months and gas prices are up 13.3% since Trump assumed office.
Moreover, according to reports by Business Insider and CNBC, analysts suggest that by the end of Spring 2016 the price of gasoline will rise another 20 cents, to about $2.58 a gallon by June 2016. This would be a 22.8% increase in the price of gas under Donald Trump.
Why Are High Oil Prices Good for American Businesses?
You might remember that gas prices under George Bush skyrocketed and it was not until a few years into the Obama Presidency that gas prices began to fall back to the low levels we have been experiencing. However, in term of “Macro-economics,” what almost no Americans seems to understand is that low oil prices are a sign of a “weak” US President and high gas prices are a sign of a “strong” President – in terms of international relations and US National interests. Remember when Trump promised the world that they would be dealing with a strong US President now?
It is no secret that the United States fancy’s itself leader over the free world and as “the worlds police,” has placed numerous sanctions on foreign/sovereign nations to inhibit their economic success and how they do business. What is lesser known is that many countries around the world have been selling oil at such low rates to hurt American business and counter-act US sanctions against them. As referenced above, these countries have also been able to successfully implement this strategy because oil output has been extremely high over the last 15 years – since 2002 , the last time OPEC cut their output and oil/gas prices rose.
Think about it, if a US company makes 5% in profit off a single barrel of oil when all is said and done, then 5% on a $38 barrel is less than 5% on a $50 dollar barrel – get it? The lower the price of oil is, the less profit margin oil companies can make. Therefore, the lower the price of oil, in theory, the more it hurts the US oil market and many of Americas largest businesses.
Considering that Donald Trump is all about protecting the interests of American businesses, has been very outspoken in his love for the fossil fuel industry and has even appointed former Exxon CEO/oil tycoon Rex Tillerson as US Secretary of State to negotiate with all of these foreign countries, with everything I just explained in mind, are you now surprised to learn that oil prices will continue to rise under Donald Trump?
Considering George Bush was from Texas and had numerous ties to the American oil market himself, I hope you now also understand why oil/gas prices rose under him as well. Many American’s falsely associate rising oil prices as a sign of bad economics or political policy, when in reality it is a business ploy to increase profits/revenue by some of Americas biggest businesses and political figures. Does that make you feel any better about the situation?