60 Reasons Trump Worries About Pump Prices
(Bloomberg Opinion) -- It is 110 days to the midterms, and you will likely visit the gas station many times between now and then.
Hence there’s an all-hands effort to keep a lid on pump prices. Pushed by the tweeter-in-chief, Saudi Arabia has executed a supertanker-size U-turn, pushing barrels back onto the market. Congress, meanwhile, threatens new legislation allowing lawsuits against OPEC (not for the first time). And there is now open debate about President Donald Trump dipping into the Strategic Petroleum Reserve for a little relief (something we warned about here last month).
A close look at the most competitive House races shows why Trump may well do so.
Higher pump prices are especially painful if you drive more and earn less than average — which happens to be more common in red states. ClearView Energy Partners LLC, a Washington-based research firm, produces regular analyses of how energy prices affect Americans. It calculates the average red-state driver bought almost a fifth more gasoline than the average blue-state driver in 2017, paying for it out of disposable personal income that was 16 percent lower.
There are 60 House races currently defined as either leaning Republican or Democrat or a toss-up by the Cook Political Report, spread across 29 states (Democrats need a net gain of 23 seats to flip the House). We have ignored the other races classified as “likely” for either party to keep the data set manageable.
The chart below shows the 29 states’ disposable income and gasoline consumption per capita in 2017, with the circle size denoting how many competitive races they’re hosting.
I’ve slightly modified ClearView’s division of states between red and blue by classifying states where Trump’s or Clinton’s margin of victory in the popular vote was 5 percent or less as purple.
It’s easy to see how pain at the pump could factor into several races. Like politics, though, all gasoline prices are local. Luckily, GasBuddy.com tracks prices at tens of thousands of stations, providing some level of granularity by approximating what someone might pay in, say, Ohio’s 12th district ($2.53 a gallon earlier this week) versus the 1st district ($2.91). This isn’t perfect, as disposable income and gasoline consumption can vary widely within states too.
Using these figures, we can come up with a rough estimate of how painful it is to fill the tank in each district at different price levels. In the years leading up to the oil crash, Americans spent between 3.5 and 5 percent of their disposable personal income on gasoline, dropping to 2 to-3 percent after 2014. Little wonder energy costs featured prominently among voters’ concerns heading into the 2012 election but didn’t even make the top 10 in 2016 (see this).
At current prices, annualized, gasoline would take an average of 3 percent of disposable personal income for voters across the 60 House races we’ve focused on. That’s up from 1.76 percent using the price from a year earlier. Add on $20 a barrel to oil prices for some sort of acute crisis — Iran; Venezuela; some combination of things — and the share goes up to almost 3.5 percent of income, on an annualized basis, getting back toward that pre-crash level.
Another way to think about this is the gasoline price at which the fuel bill climbs above 3.5 percent of income — sort of a break-point price rather than a breakeven. The lower it is, the more exposed you are when pump prices rise. Using ClearView’s data, here’s the pain threshold for the states with competitive races, along with the average current price for their districts:
Taking this a step further, the chart below looks at all 60 competitive races, showing the proportion of disposable income taken by gasoline under the crisis scenario, as well as how much of an increase that would represent versus where gasoline prices were a year ago:
That top right quadrant is the trouble zone, where drivers would feel a heavy burden and whiplashed by a rapid increase. House members could face uncomfortable calls from constituents (and attack ads from opponents). Fully 25 of the 60 races sit there; and 22 of those are in districts that last elected a Republican.
Kentucky’s 6th district, Montana’s single seat and Maine’s 2nd are the extreme cases. In the latter, for example, the implied annualized gasoline bill rises from just under $1,100 a year ago to almost $1,900 per capita under the crisis scenario. Races in Texas and Minnesota also feature heavily (although Texas is also one of the few states also benefiting from higher prices). Wisconsin’s 1st district, being vacated by Speaker Paul Ryan, is also up there.
In another 14 races — see the top-left quadrant — gasoline’s share of income would be lower than 3.5 percent but still have risen sharply. Of those, all but one last elected a Republican, with Florida and Virginia featuring prominently.
For a really detailed look at all 60 races, the graphic below sorts them by the Cook Report’s assessment and shows gasoline’s annualized share of disposable personal income at three different price levels: a year ago, now, and with an extra $20 on the oil price. Notice how a large proportion of the races leaning Republican are close to or inside that painful zone of more than 3.5 percent already and could see some of the sharpest increases relative to a year ago:
It is the curse of U.S. presidents that whoever sits in the Oval Office gets blamed for high oil prices despite having little control over them. But as he attempts to reconcile his foreign-policy goals with the midterm math, it’s easy to see why Trump may go all out to try anyway.
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.
Elaine He is Bloomberg Opinion's data visualization columnist in Europe, focusing on business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.
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