Rising Foreign Demand Keeps U.S. Gas Prices High

Though U.S. demand is low, gas prices are on the rise due to booming exports to Brazil, China, and India


Patrick DeHaan is a senior analyst at gasbuddy.com.

If you've driven by a gasoline station lately, odds are you've seen the sign and understood the damage to your wallet. Gasoline prices across the nation are at seasonal all-time highs, and the psyche is certainly wearing on Americans. Not only is the continued talk about high gasoline prices depressing Americans, but it's also slowing demand for gasoline. In the most recent Energy Information Administration report, the government highlights gasoline demand that has fallen to under eight million barrels per day, a figure we haven't seen since January, 2001.

[See the 10 priciest years in history for gas.]

Many Americans are wondering how gasoline prices can remain at such high levels if gasoline demand in this country remains subdued, and the answer is simple for those who understand economics. Exports. While the United States is a developed country and has been reliant on gasoline for decades, developing countries like Brazil, China, and India are up and coming, and citizens in these countries are taking home more money, and have the need for speed. So while the United States is moving towards more fuel efficient cars and less driving, the Chinese are handing drivers licenses out at a breakneck pace, and those drivers are buying new cars and filling them with gasoline. And not only are there new motorists in China and India—there are shortages of gasoline in Brazil. These three countries are easily offsetting lower U.S. demand for gasoline, so refineries are increasingly exporting finished gasoline and diesel fuel. While exports remain high, domestic supply takes a hit, and that keeps prices higher.

[See a collection of political cartoons on gas prices.]

The problem won't get better anytime soon, either. We continue to have massive trade deficits with China, sending billions of dollars there every month which essentially helps China put more money in its citizens' pockets, giving them the urge to drive and have what we have. If Americans haven't figured out that the United States isn't the only country consuming gasoline, they clearly need to open their eyes. Brazil, for example, has seen its imports of gasoline rise over 224 percent through November of 2011 compared to the same time period in 2010. The end of putting massive tariffs on Brazilian ethanol won't help Americans out at all as Brazil faces shortages of its own sugar-based ethanol. Brazil has increasingly relied on American corn-based ethanol and likely will for the next few years as the off balance slowly corrects itself.

If American's aren't concerned about this growing trend of rising exports and consumption outside the United States, they should be. It's a problem that will cost Americans billions of dollars in the years ahead, and affordable gasoline? Forget about it. We need those Corporate Average Fuel Economy standards to kick in and soon! So while some say forget these standards, it'll cost us more when we buy a car, I say bring it on—and now—so we're ready when domestic gasoline prices hit $5 in the next year or two. 

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