Gasoline exports feed the rise of pump prices across Tennessee and the country

From Texas to the Dakotas, oil output has surged, ranking America once again among the world’s top energy producers. But, the boom hasn’t stopped rising gasoline prices.

Unleaded regular has pushed over $2.41 per gallon on average in Memphis, Nashville and Jackson, Tenn., and has neared that level in Chattanooga and Knoxville, reports insurer AAA’s price survey.

Analysts expect gas prices in cities throughout the state could climb another 10 cents by early spring, a gain of almost half a dollar in a year.

For the typical driver putting 250 miles per week on a V6-powered Ford F-150 pickup truck, the nation’s top-selling vehicle, gasoline for the home-work commute will cost about $39 per week, up from about $31 last spring.

It’s the new normal at the pump.

It’s happening across the country, and few experts think it could fade away soon. Instead, energy-fed inflation could weigh on Washington policy makers later this year when they mull possible interest-rate increases.

Higher gasoline prices trace in part to the new surge in U.S. gasoline exports. Tankers crossing the Gulf of Mexico are unloading gasoline in South American ports following Venezuela’s oil sector collapse and the inability of Mexican refiners to make full use of their own production capacity.

“We’ve got plenty of crude oil in the United States. Production is blasting through all kinds of records,’’ said energy analyst Tom Kloza. “We’ve become perhaps the world’s biggest exporter of gasoline.’’

At the same time, oil output by Saudi Arabia finally eased. This ticked up oil prices worldwide, attracting back into the commodity futures market speculators and investors betting on rising energy prices. Kloza estimates these bets account for about a third of the rise in oil prices, and in turn gasoline prices, over the last year.

Investors looking for quick profits had touched off the dramatic rise in oil prices a decade ago. West Texas light sweet crude oil surpassed $110 per barrel. Unleaded regular crested in September 2008 at $4.11 per gallon on average at gas stations across Tennessee. But heavy losses battered money managers by 2015 and they left the market.

That’s when surprisingly big finds of U.S. shale oil reached refiners in high volume, a glut of oil that filled the massive oil tank farms at Cushing, Okla., source of the oil refined at Valero Energy Corp.’s Memphis plant, and sent oil prices reeling to $40 per barrel.

Alarmed by the so-called oil fracking boom in America, Saudi Arabia's leaders marshaled the cartel known as the Organization of Petroleum Exporting Countries to keep up global oil prices. Trying to sustain huge domestic social programs paid for by oil exports, the Saudis shipped waves of oil worldwide. At many gas stations in Memphis and throughout the state, unleaded fell below $1.90 per gallon as the Saudis bid to throw U.S. shale oil producers out of business by pushing prices down.

Although a spate of bankruptcies shook the American Great Plains, home of the largest frackers, survivors learned to produce at lower cost using machines to take the oil from layers of sand and rock. Realizing the frackers were dug in and restoring U.S. oil output to high levels last seen in the 1970s, the Saudis retreated from the price war last year.

As the oil glut eased and speculators pushed in, demand for gas by U.S. motorists putting over 1.1 trillion miles per year on the fleet of 300 million cars and trucks remained steady. Oil nosed over $71 per barrel in late January and has leveled off around $66, marking the end of the three-year spell of low prices, said Kloza, head of global energy analysis at market researcher Oil Price Information Services of Gaithersburg, Md.

“The average family is going to pay $40 to $50 more for gasoline this year than last year,” Kloza estimated. “And $90 over what they paid in 2016. That’s still $50 to $100 lower than what they paid every year from 2011 to 2014.”

Although national gasoline prices have climbed about 40 percent in two years, to about $2.75 per gallon on average for unleaded regular and premium combined, economic analyst Joel Naroff said he doubts the higher expense will diminish consumer spending on gas or other items.

“This is now beginning to dig into lower and middle-income household wallets," said Naroff, co-author of the 2014 book “Big Picture Economics: How to Navigate the New Global Economy. “But it’s really going to be offset by the tax cuts’’ approved by Congress in December.

With families buying ever more products online, rather than driving to the stores, Amazon, UPS, FedEx and other distribution chain companies will be pressed to look for savings in their operating costs, Naroff said.

“Even though it’s going to be offset by the tax cuts I don’t think we can dismiss higher gasoline prices,” said Naroff, head of Naroff Economic Advisers of Holland, Pa.

If the energy costs ripple through the supply chain and tick up the inflation rate, he said, the Federal Reserve Board perhaps late this year or next year might respond with a rise in interest rates, particularly if wage growth has kicked up and the tax cuts accelerate the economy.

“If we see rises in energy prices and rises in wages, those factors and increasing demand in the economy all lead to rising inflation,” Naroff said. “That will translate into higher interest rates. Whether the higher rates cause the next recession will partly depend on how high and fast they are raised.”