WASHINGTON (TNND) — There’s an unusual decoupling going on right now in energy markets: gas prices are coming down, while energy prices and costs for everyday Americans are shooting up at extraordinary rates. The dynamic is creating a possibly toxic situation for candidates ahead of next year’s midterm elections.
Labor Department data show average costs for powering homes and buildings is trending upward all while prices at the pump keep going the opposite way, largely as a result of growing supply and mostly tepid global oil demand growth. The nationwide average price will hover around $2.90 per gallon next year, or about 6% less than this year, according to the Energy Information Administration.
Analysts believe sub-$3 per gallon gas could become a semi-permanent situation for the time being.
With more than 40 states seeing gas prices decline and oil tumbling below $60 per barrel, the good news may not stop if — and when — the national average hits that magical $2.99 mark,” Patrick De Haan, head of petroleum analysis at GasBuddy, told USA Today Tuesday.
According to De Haan, it’s been several years since prices have not dropped below that threshold and stayed there.
There are several factors that are blunting gas prices.
Crude prices fell below $60 earlier this month after President Donald Trump floated a new, more aggressive round of tariffs last week on China after Beijing announced new restrictions on rare earth exports. If those tariffs and the Chinese restrictions do go into effect, they could take a meat cleaver to global oil demand.
Trump’s threats also caused a major stock sell-off. Most of the stocks have since recovered some of what they lost after the president tried to calm the waters this week.
Another situation keeping the floor low are actions by the Organization of Petroleum-Exporting Countries — or OPEC +. The oil cartel, which includes Russia, is rolling out production increases despite drops in global demand. Brent crude dipped to $63 per barrel from $65.
These rock bottom prices are great for consumers, but not great for Big Oil.
Energy producers Exxon, Chevron, Shell and BP are moving to slash jobs and reduce costs of late amid the industry-wide downturn. That represents a shift from just a few years ago, when oil prices flirted with $100 per barrel amid Russia’s then-new war in Ukraine, and as economies began returning from coronavirus pandemic lockdowns.
And while pump prices are coming in low, energy prices have gone up twice as fast as overall inflation since the pandemic and it’s not driven by fuel markets.
Like gas prices coming down, there are multiple factors here driving costs upward.
For one, the infrastructure the U.S. uses to carry electricity to residential areas is old and antiquated, according to analysts. Founding executive editor of Heatmap News Robinson Meyer told NPR recently that utilities are replacing decaying equipment at a rapid pace in the wake of a rash of destructive storms, floods, wildfires and hurricanes.
The improvements and construction just so happen to coincide with a ramp up in consumption, fueled by the growth of data centers built to power the artificial intelligence boom, and a growing demand for electric vehicles, Meyer noted.
We’ve had the grid for a long time, and it’s time for those systems to be replaced,” he told NPR. “And unfortunately, they’re beginning to be replaced at the same time as we’re seeing rising electricity demand for the first time in the U.S. in a generation.”
It’s the breakneck data center construction that could disrupt the political apple cart come next year’s midterms.
An early example of what is possibly to come nationwide is shaping Virginia’s political races, according to Semafor, which reports there’s bipartisan support in the state for legislation meant to slow their construction. Candidates in both parties in Virginia are blaming data centers for prices jumping.
“I think we should, personally, block all future data centers,” Patrick Harders, a Republican running for a board of supervisors’ seat in Virginia, told voters last week, Semafor reported. Harders’ Democratic opponent — George Stewart — agreed with that position, calling data centers a “crushing weight” on Virginians.
Trump and Republicans have spent months etching out a bullish position on AI development and data center construction. The president signed executive orders earlier this year aiming to fast-track permitting for data centers, while GOP candidates tout what they see as economic benefits stemming from the centers.
In Virginia, gubernatorial candidate — Republican Lt. Gov. Winsome Earle-Sears — is among those in her party sticking to their construction. She’s blaming Democrats and environmental regulations for the uptick in resident’s energy prices this year.
My opponent’s only plan is solar and wind,” Earle-Sears said in a televised debate against Democratic nominee Abigail Spanberger. “Well, what happens when the sun goes down?” Spanberger took a different route, saying that big tech companies should “pay their own way” for electricity.
