The Head Of The Country's Largest Auto Dealer Is Scratching His Head About What's Happening With Gas Prices

Gas prices are up about 4% this week and now stand at $3.67.

That shouldn’t be, according to Auto Nation CEO Mike Jackson.

In an appearance on CNBC’s “Squawk Box,” he argued that long-running trends suggest gas prices should be way lower:

“For the life of me, I can’t understand why gasoline is $3.50 a gallon. Miles driven is below the peak of ’07, and oil is gushing out all over America. So we have dramatically increased supply and people are driving more fuel efficient cars. So any common sense would say gas prices are coming down.”

All of that is true. But let’s break things down a little bit more.

1) Average fuel economy is way up.

fuel economy

2) As is US oil production.

mark perry oil production

3) Meanwhile, absolute vehicle miles driven has flatlined.

vehicle miels driven


As a result, you get this chart: the five-year move in gas prices, from FRED. We’re going lower!

gas prices fred

So why are gas prices up this week?

Gasoline prices closely track the Brent crude index, which saw a large run-up at the beginning of the month thanks to Middle East unrest.

“World geopolitics has added risk to oil, raising prices,” Trilby Lundberg, president of Lundberg Survey, told Bloomberg’s Barbara Powell and David Wethe Monday. “U.S. refiners have passed oil price hikes through to their jobbers and retailers, mostly in the past three days, so that moderate price hikes at the pump are imminent.

There have also been outages at refineries that have driven prices upward, Futures Mag’s Phil Flynn reports:

RBOB soared on rumours that a Canadian refiner was in the cash market buying product. … three refineries that serve the New York Harbor market have units shut or slowed. Irving Oil Corp. has shut multiple units, including two fluid catalytic crackers, at its St. John, New Brunswick, plant, Genscape Inc., a Louisville, Kentucky-based energy information provider, reported yesterday.

It’s difficult to say where prices will go in the short term. 

But the bigger picture is clear: it won’t go much higher.

This story was originally published by CNBC.

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