Gas tax holiday would have a ’very small impact’ on prices, expert says

President of Lipow Oil Associates, LLC, Andrew Lipow sits down with Yahoo Finance Live to talk about President Biden's consideration of a federal gas tax holiday amid surging gas prices, the supply and demand of American refined oil, and the inflationary pressures impacting the summer travel season.

Video Transcript

- Gas prices remain near record highs, today averaging $4.97 a gallon nationwide. And with that, President Biden considering a gas tax holiday to give Americans a little relief. What does that mean for you and for the markets? Andrew Lipow is the President of Lipow Oil Associates. Nice to see you, sir. So first, just talk about what exactly a federal gas tax holiday means for consumers.

ANDREW LIPOW: Well, currently, the government collects $0.18 a gallon in a federal excise tax for every gallon of gasoline that the consumer buys. So if we have a tax holliday for that federal excise tax, that savings of $0.18 would be passed on to the consumer in the form of lower retail prices.

- And is it really going to move the needle here when we're talking about prices that are right near record highs? We've seen some relief there. But just in terms of the Biden presidency, the messaging, the impact that it's going to have on everyday Americans, what's your read on that?

ANDREW LIPOW: Well, in the context of gasoline prices, which have risen nearly $2 a gallon since this time last year, it's really a very small impact for the consumer. And the other thing is it does nothing as far as supplying the consumer with more energy, which is what the world is looking for at the moment.

- Does it stand the risk of increasing demand?

ANDREW LIPOW: Well, I think what it does is mitigates any demand destruction that these higher prices are incurring on the consumers. So while gasoline demand has been pretty good as Americans take to the road for the summer driving season, I think that it's hard to make the case that it actually increases demand. But it certainly doesn't do anything to reduce demand and increase supply of gas.

- So Andy, where do you think prices are headed? Because, right now, we've seen a little bit of relief. We saw the first weekly pullback that we've seen since April. The average gas price right now nationwide, $4.97. Do you think we're in for a larger decline ahead?

ANDREW LIPOW: Well, I think in the next couple of weeks, I expect gasoline prices to first decline to $4.95 and then go to $4.90. But beyond that, it's very tricky because the world continues to look at where the alternative supplies of crude oil are going to come from now that the European Union is phasing in a ban of Russian oil supplies and the rest of us are seeking alternative supplies to those Russian barrels.

- Where are the alternatives? What can the administration in particular do to increase supply?

ANDREW LIPOW: Well, there's actually very little that they can do. But one thing they could do in the immediate term would be to relax the environmental regulations regarding gasoline and allow refiners to make a cheaper formulation and more of it. That would have the effect of lowering prices. And we've seen the state of Wisconsin ask exactly that of the EPA, to allow them to sell a cheaper grade of gasoline.

- Andy, how significantly could that potentially lower the prices?

ANDREW LIPOW: Well, that could lower prices a good $0.30 to $0.40 a gallon because we could have a significant increase in supplies of about 4%, which is enough to tip the needle and get us, certainly, through the summer driving season.

- The summer driving season, which peaks July 4, and the prediction from AAA is a record 48 million people will hit the road despite a record high in gas prices. At what point do you think we will see some demand destruction?

ANDREW LIPOW: Well, I think we're seeing it on the fringes as the consumer and their local driving habits are combining errands and being more circumspect of where they drive. I think during the summer vacation season, what you'll see is drivers still take to the roads. But they will take vacations that are closer to home, given the high price of gasoline.

- Andy, another event that we are going to be closely watching, President Biden as he heads to Saudi Arabia. Oil prices I'm sure is going to be one of the main topics-- the main topic-- of that meeting. Do you expect to hear anything out of that meeting between Biden and Saudi Arabia officials here that could influence or really significantly impact the price of gas and price of oil?

ANDREW LIPOW: I don't think we're going to see anything immediately. But I do think, ultimately, Saudi Arabia is going to decide to use some of its spare production capacity to make up for OPEC Plus' shortfall in production, even though we hear every month they've been raising their production quotas. As it stands right now, they're about 2 and 1/2 million barrels a day below their production quota. And the IEA has also said today in fact that they don't expect Nigeria or Angola to come close to their production quota for another year.

- Andrew, what will the price of gas be early August in your estimation?

ANDREW LIPOW: I think it's going to be just shy of $5 a gallon because I think that oil prices are still going to remain high as world inventories continue to decline and we look for alternative supplies. But the only thing that's left for the market to rein in the demand is higher prices.

- Andy Lipow, always great to hear from you. Thanks so much for joining us this afternoon.