Just How Strong Is the U.S. Economy? $3 Gas Won’t Even Slow It Down.

May 16, 2018
by Bob Adelmann

The mainstream media has spent an inordinate amount of time, ink, and airtime over the rising cost of gas, blaming most of it on the president’s termination of the “horrible” Iranian nuclear deal. They grieve over the impact that termination will have on everything from bombs in the Middle East to the price of gas in Tuscaloosa. (For the record, it’s $2.51 a gallon, according to GasBuddy – see Sources below.)

Some states are higher, including California ($3.68), Hawaii ($3.63), Washington ($3.35), and Oregon ($3.23). Some states are lower, including Mississippi ($2.56), Arkansas ($2.57), South Carolina ($2.58), and Louisiana ($2.58).

But none of them seem to be dampening the spirits of the American consumer, who is planning his Memorial Day holiday and his summer vacation. Mark Jenkins, a spokesman for AAA, doesn’t expect higher prices at the pump to change many Americans’ plans to travel this summer:

Gas prices are [at] their highest in years, yet that doesn’t seem to be slowing motorists down. The latest round of figures from the EIA [U.S. Energy Information Administration] shows that gasoline demand is significantly higher than this time last year.

A strong economy is helping to fuel motorists along, as we approach the most traveled Memorial Day in more than a dozen years.

Jenkins estimates that more than 41.5 million Americans will travel at least 50 miles or more over the Memorial Day weekend – from Thursday, May 24 to Monday, May 28 – the highest number since 2005 when 44 million hit the road or the air. This is five percent higher than last Memorial Day, and an increase for the fourth straight year, said Jenkins.

In other words, few appear to be changing their plans due to higher prices of gas. In fact, the real impact on the average American family’s budget is, according to Patrick DeHaan, head of research at GasBuddy, modest. That family will spend about $1,900 on gas for all of 2018, an increase of about $130 over last year. Travelers on vacation driving 1,000 miles, burning 50 gallons of gas at an average cost of $3, will spend $150 on gas. Last year, when gas was 50 cents a gallon cheaper, those travelers spent $125 on gas for the same trip.

That increase of $25 just simply isn’t enough to put a crimp in many families’ plans, especially when the average worker is enjoying a tax cut estimated at about $1,000 this year. Optimism is what is driving the family vacation this year, despite higher gas prices.

Transient events have driven the price of crude oil higher. On Tuesday, WTI crude priced in Oklahoma was trading at just under $71 a barrel, a number not seen in three-and-a-half years. Brent (priced in London) is crowding $80 a barrel. This is a reaction to just a few of the following:

The demand for energy as the American economy continues its extraordinary revival from the Obama years;

The global demand for energy as the economic U.S. revival reverberates across the world;

The unfolding and seemingly endless rolling catastrophe in Venezuela, which has already removed 1.5 million barrels per day (BPD) from global supply with another 500,000 evaporating over the next six to 12 months;

The termination of the Iran “deal,” which will cut between 500,000 and a million bpd of world supply;

The upcoming OPEC meeting in June, where the topic no doubt will be ending the production cut agreement early in order to allow the cartel’s members to ramp up production to take advantage of the higher prices, and

The inability of pipeline capacity in the Permian Basin to keep up with new production there.

In response, American oil producers are expanding production capacities elsewhere, including South Dakota and Colorado. OPEC is likely to end the agreement early. Venezuela will revive as soon as the present Marxist dictator is removed and common sense is restored in Caracas.

In addition, with the economy humming along at nearly full capacity, new jobs, higher wages, still lower unemployment, increased capital investment, and improving small business owner optimism all bode well for a rising standard of living rippling out across the country. The present and improving economic momentum is so strong that it won’t even feel the bump from a temporary increase in the price of gas and oil. In other words, American consumers are right now enjoying a “sweet spot”: the conjunction of tax cuts, renewed confidence and faith in the economy, and new capital flowing in from abroad which is raising nearly everyone’s standard of living.

----------------------------

Sources:

GasBuddy: Price of gas in Tuscaloosa? $2.51 a gallon

CNBC.com: Gasoline prices could see summer spike, with prices at 4-year highs and record demand

BizJournals.com/Orlando: 7 things to know today and why gas prices are ‘their highest in years’

MarketWatch.com: Here’s how much $3-per-gallon gas will offset the tax cuts

MarketWatch.com: U.S. gasoline prices could top $3 this summer thanks to Iran and Venezuela

TheStreet.com: Rising Gas Prices Unlikely to Hurt Retailers This Summer

Reuters.com: U.S. Memorial Day travel to rise for fourth straight year: AAA

The Wall Street Journal: Oil Rises to New Three-Year Highs

GasBuddy.com: GAS PRICES JUMP AS U.S. EXITS IRAN DEAL

Add new comment

Plain text

CHECK OUT THE ENTIRE MCALVANY NETWORK

McAlvany Weekly Commentary provides investors with valuable monetary, economic, geo-political and financial information that cannot be found on Wall Street. Your host David McAlvany presents a solid strategy of wealth preservation for your financial and retirement assets while living in an unstable economy.

Through its client focused, customized approach, MWM is committed to providing independent, well-researched, objective advice, and investment professionalism. At MWM, our client commitment is to preserve capital, manage risk, and grow your assets in an ever-changing global environment.

At International Collectors Associates (ICA), we specialize in the sale of bullion, semi-rare U.S. and European gold coins and secure offshore storage in Switzerland for your precious metals. Our highly trained and experienced advisors strive to help you in customizing solid strategies of wealth preservation for your financial and retirement assets.

McAlvany Financial Group

The McAlvany Financial Group has a contrarian, in-depth approach to its analysis, allowing the company to avoid decisions based on emotion, and thus combine maximum risk mitigation with consistent real growth for its clients’ investments. Integrity, attentiveness, and longevity have characterized the company’s client relationships since 1972.