Around Christmastime President Trump put the Tax Cuts and Jobs Act into place promising reduced taxes for middle and lower income Americans. One analyst says that, unfortunately, the geopolitical climate has pushed gas prices higher and consumed all of those savings.
Dr. Vincent Malanga of LaSalle Economics told AgriTalk host Chip Flory it’s hard to see any indication the president’s tax cuts have boosted the economy.
“You know, it's hard to see in any sectors of the economy,” he said. “This was touted as a spur of business investment. Aside from the oil fields which are booming, not because of the tax stimulus but because of higher oil prices, you don't really see it in business investment yet.”
Malanga admits consumer spending is slightly stronger but he says those savings have been consumed by rising gasoline prices.
According to the U.S. Department of Commerce, Americans paid $4.4 billion more for gasoline last month than they did the same time last year. Malanga said gas prices are rising because of a multitude of geopolitical factors.
“But first and foremost has just been the success that OPEC and Russia have had in reducing output and getting the supply/demand balance restored,” he explained. “Now of course the Middle East is on fire again, and there's all sorts of crazy things going on there. And on top of that we've abandoned the Iran Nuclear Deal, and we don't know how bad that's going to be, but we know it's not going to be good.”
While Malanga admits he doesn’t know exactly how harmful leaving the Iran Nuclear Deal will be for America’s economy, he said Saudi Arabia will make up any shortfall and supply caused by the abandonment of the agreement.
“Some shortfall of exports is going to occur from Iran and on top of that, of course, Venezuela is a complete basket case and production’s been declining in that country pretty regularly. So the global supply demand balance is clearly tightened,” he explained. “Saudi has made noises that they want to see oil around $80-$85 a barrel, and I always work on the mantra that what Saudi wants, Saudi gets, so I think we can probably look forward to at least over the next several months continued upward pressure on oil prices.”
In the U.S. the domestic oil industry is pumping oil “like crazy,” Malanga said. Oil production in the lower 48 states has been hitting new records every week. While the industry is running into some bottlenecks due to a shortage of pipeline capacity, he said the domestic oil industry is enjoying gas prices as much as international producers are.
MarketWatch reports the average price for a gallon of gas in the U.S. will cross the $3 mark before the summer is over.