Yahoo Finance Why Trump edges Biden on gas prices
Some Americans have rosy memories of Donald Trump’s presidency, perhaps because gasoline was cheaper then. Trump gets better marks than Biden on economic issues, one of the big reasons he’s beating Biden in some 2024 presidential election polls.
But gas prices were cheaper during Trump’s presidency for reasons that had nothing to do with Trump and are no longer in force. Anybody who thinks Trump would take some kind of decisive action to lower energy prices if he wins a second presidential term is likely to end up deeply disappointed.
First, the facts. Oil and gasoline prices were subdued from 2014 through early 2021, which included the Trump presidency. When Trump took office in January 2017, the average price of gas was $2.47 per gallon. The average for his entire four-year term was only slightly higher, at $2.57. Excluding the COVID pandemic that dominated Trump’s last 10 months in office and sent oil and gas prices plummeting, the average pump price was $2.67.
When Biden took office in January 2021, gas prices averaged $2.42. But they shot up along with oil prices, peaking at $5 per gallon in June 2022. Through Biden’s presidency so far, gas prices have averaged $3.61. That’s 40% higher than gas prices during Trump’s entire term and 35% higher if you exclude the COVID period.
Even adjusting for inflation, gas prices have been considerably higher under Biden. The average Trump price, in 2024 dollars, was $3.18. The average Biden price was $3.86. That’s 21% higher under Biden, adjusted for inflation.
It might seem easy to conclude that Biden is responsible for the higher gas prices of the last two years, since Biden is a green energy champion who has bad-mouthed the fossil fuel industry. Trump, by contrast, cheers oil and gas and says his energy policy is “drill, baby, drill.”
But market forces that no US president can control explain the recent history of oil and gas prices far more than anything Trump or Biden has done. Those market forces also negate the idea that Trump or any president could enact policies that would somehow lower gasoline and other energy costs for American consumers.
Trump came into office as the American hydraulic fracturing revolution was picking up steam. Fracking, as the technology is known, led to a massive boom in US oil production, which got started under the Obama administration around 2012. The following chart shows how US production hit a new high during Obama’s presidency in 2015, hit another series of highs under Trump, and then dropped sharply after COVID hit in 2020.
Then — surprise — US oil production surged to yet another record high under Biden. How could that be? Biden canceled the Keystone XL pipeline project and took other steps to limit domestic oil and gas development. He also signed into law a huge set of green energy incentives meant to speed the displacement of fossil fuels.
Despite all that, the US president doesn’t control oil or natural gas production the way the leaders of big autocratic oil-producing nations such as Saudi Arabia and Russia do. There’s no US government quota for fossil fuel production. Instead, private-sector firms driven by free-market principles drill more or less based on how they think they can optimize their financial returns.
During the early days of fracking, many drillers — and their investors — prioritized growth and market share over profitability, similar to many startup industries. At the same time, Saudi Arabia and other OPEC+ nations amped up their own production to defend their global market share against the American upstarts.
That flood of oil kept prices depressed. Many US energy firms lost money. “US energy investors subsidized consumers around the world,” Raoul LeBlanc, vice president of the energy practice at S&P Global, told Yahoo Finance in 2022. “US consumers got used to low prices they think of as normal. But for these firms to be profitable, prices have to be higher.”
Some fossil fuel critics think of Big Oil as a bottomless source of cash, but low prices for consumers came at the expense of profits for producers. From 2010 through 2020, the profit margin for energy firms in the S&P 500 stock index averaged just 2.6%. That was the worst of all 11 sectors during that time and way lower than the 9% average for the S&P overall.
The COVID year of 2020 was a bloodbath for the energy industry, with so much overproduction that oil prices briefly fell below zero because there was no more room for storage. More than 600 energy firms went bankrupt. That searing experience changed the entire industry. Market share was out. Profits were in. Energy firms slashed capacity—including refineries that turn oil into gasoline—and drillers began practicing “capital discipline,” investing in new production only if there was a high likelihood of near-term profits.
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One irony is that fossil fuel firms have done better under Biden than they did under Trump. During Trump’s four years in office, the average profit margin of the energy sector was an awful -0.6%, according to S&P Capital IQ. That includes 2020, when the energy profit margin was -16%, the worst performance of any sector, by far, in any year since at least 2010.
During Biden’s three years, the energy sector profit margin has averaged a healthy 11%, with Capital IQ forecasting the same margin for 2024. That’s roughly the same as the average profit margin for the S&P overall. Tech is the most profitable sector, with a 22% margin in 2023, double the energy sector.
Anybody looking for Biden’s fingerprints on energy sector profits (or losses) won’t find them. Biden’s actions on energy have almost totally targeted future development, not current production. The Keystone XL pipeline Biden killed, for instance, wasn’t even built yet, and it would have carried Canadian oil to Gulf Coast refineries where at least some of it would likely have been exported. Killing XL had no effect whatsoever on current oil or gasoline prices.
Market factors explain virtually everything about oil and gas prices under Biden, as they did under Trump. Saudi Arabia and other OPEC+ nations have cut production during the last two years to keep prices high. Unlike the US president, the leaders of those countries do exercise control over national oil production. Russia’s 2022 invasion of Ukraine created other snags in global energy flows, putting upward pressure on prices even now, more than two years later.
American producers are now pumping record amounts of oil because they’re making money doing so. If oil prices fell because OPEC+ started producing more, or for any other reason, it would be less profitable for US drillers and they’d probably cut back.
If Trump became president, he could try to ease permitting and take other steps to encourage even more US oil production. But drillers are no longer going to risk losing money by producing too much, no matter what any president does. They tried that in the 2010s and got badly burned. American drivers prefer the lower prices of the Trump presidency to the higher prices under Biden, but American drillers sure don’t.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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