After World War II, the booming US economy was associated with the rise in the use of personal cars and trucks. As more people hit the road, gasoline production also increased. Most of the initial US demand was derived from domestic crude oil production. However, when US production was unable to keep up with demand, the balance was provided by crude oil imports. By the early 1970s, imports accounted for about a third of total US demand for gasoline and other products derived from crude oil. The increase in imports kept gasoline prices low despite the increases in demand.
However, in the mid-to-late 1970s, this reliance on foreign sources of oil, especially from OPEC, would provide the first shock to the gasoline market. In 1973, in retaliation for the US support of Israel, OPEC cut off oil to the United States and its allies. Overnight, prices of gasoline skyrocketed. Fortunately, diplomatic efforts restored the imports in March of 1974, but the United States would once again face a similar shock in 1979 when Iran cut off its exports during the Iranian Revolution. Coupled with a continued increase in demand, the supply decrease led to a spike in gasoline prices.
Starting in the early 1980s, and lasting for almost two decades, gasoline prices stabilized. However, after the 2001 recession, the long period of global economic growth led to an increase in demand for crude oil and associated increases in gasoline prices. By 2008, with higher prices and advances in drilling technologies, producers began exploring new and more costly sources of crude oil. After 2012, this increased production drove down prices, until prices began to rise again as world economic growth led to increased demand.
However, in 2020, the COVID-19 pandemic and the associated economic shutdowns reduced global oil demand and gasoline prices, leading older gasoline refineries to permanently close and many crude oil wells be shut down. Thus, as the world emerged from the economic crisis created by the pandemic, the supply of both crude oil and gasoline was lower. With relatively low supply and increased demand, this put upward pressure on prices.
While in 2008, higher prices led to increased oil production and subsequently lower gasoline prices, there is evidence that might not happen again. After 2014, oil companies lost money as prices fell with the glut of new production. Going forward, investors are more wary of increased production that may not pay off. Additionally, when oil production was dramatically reduced in 2020, many workers lost their jobs and have transitioned to other industries. Depending on the state of the economy, it may be difficult to recruit these workers back to the oil industry given the boom-and-bust cycle of employment.
It is telling that oil company executives do not believe there will be any new refineries built in the United States. Given the factors noted above, it is likely that the United States will permanently face supply constraints on gasoline.
