The supply and demand for U.S.-produced gasoline has reached equilibrium levels. National average prices that were over $5 per gallon in early 2022 at the start of the Ukraine war dropped to $3.30 in May.
Absent further dislocations, we expect this matching of supply and demand to continue even as other consumer prices are pressured higher.
Get Joe Brusuelas’s Market Minute economic commentary every morning. Subscribe now.
Supply
The United States has become the largest exporter of petroleum products, with the domestic supply of finished gasoline now 32% higher than in 1979. Finished gasoline is what you pump into your car.
We picked 1979 as the starting point because that’s when consumer demand for gasoline was at its peak.
After the oil embargoes of the 1970s, cars were required to become more energy efficient and consumer preferences responded to higher gas prices. Pew reports that between 1975 and 1985, passenger vehicle mileage doubled from around 13.5 to 27.5 miles per gallon.
Demand
Those efficiency gains have continued, and with the advent of electric vehicles, consumer demand for gasoline has trended lower even as population and incomes have grown.
Since 1979, consumer demand for gasoline on a per capita basis has dropped by nearly 28%, even though the economy is three times larger.
The takeaway
The supply of gasoline for consumers is sufficient for consumer demand.
We expect automobile efficiency and performance to continue to increase, whether powered by gasoline or electricity. This should keep the supply and demand for gasoline in balance.
Still, because crude oil is a fungible global product, disruptions to global supplies will have repercussions in the domestic market.
