We Have Passed Peak Gas, And Higher Prices Are On The Horizon

According to the US Energy Information Administration, Americans consumed an average of 392 million gallons of gasoline per day in 2018, which was an all-time high. That number is expected to drop to 369 million by the year 2022, according to the agency. Although the fuel price might go down this year, it appears as though the peak of 2018 will never be replicated.

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As for the reasons behind the decline, one of the key factors was the decline of vehicle miles traveled. Per capita vehicle miles traveled had already been decreasing before the pandemic, and the shift from traditional work to remote work brought an overall decrease in vehicle miles traveled.

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There are, however, many reasons why consumption is expected to continue to fall. By 2022, fully electric vehicles will account for 5.8% of all vehicles sold in the United States, up from 3.1% in 2021. 

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By the end of the decade, the market share is projected to be around 50% or even more due to the huge investments made by the Biden administration in battery production and charging infrastructure, coupled with tough new emissions standards announced by the bipartisan infrastructure law of 2021.

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Despite the decline in consumer demand, it is possible that a side effect may be higher gasoline prices. Oil prices are determined by supply and demand in the world, and peak oil demand has not yet arrived. However, cuts in refinery capacity in the US are expected to result in a higher profit margin for refiners in light of a declining gasoline demand. 

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A refinery capacity decline over the past decade has been faster than gasoline consumption on the West Coast, where EVs have the highest market share (in 2022, it will reach 17.1% in California). This results in fatter margins for refiners and higher gasoline prices than elsewhere in the country, resulting in higher and faster-rising gasoline prices.