As 2011 comes to a close—and with oil market uncertainty and risk seemingly rising in 2012—it’s worth taking note of the fact that spending on fuel prices soared to record highs in 2011.  This article from UPI cites data from the Oil Price Information Service, estimating that the average U.S. household spent more than $4,000 on gasoline this year.  That represents about 8.4 percent of the median household income.

We took a look at the same numbers over the past few days and came to strikingly similar conclusions.  According to SAFE calculations, spending on gasoline was approximately 8.2 percent of median household income in 2011.  It was as low as 3.9 percent as recently as 2002.

Looking back over the past decade, it’s clear that household spending on gasoline has been rising in recent years as gasoline prices have increased—the relationship reinforces the notion that spending on gasoline is highly inelastic.  As a result, the increase in gas prices—and gas spending—has acted as a kind of tax, reducing consumers’ spending power and stunting economic growth. 

Rising gas prices have also affected other public policies.  For example, consider the Bush tax cuts.  In 2008, median household spending on gasoline was approximately $2000 dollars more than it was in 2001.  The cumulative impact of changes to the tax code over the same period increased household income by $1,900.  Thus, rising fuels prices acted as a tax increase that fully offset the benefit of tax cuts.  This cycle repeated itself in 2010-2011, when gasoline price increases fully offset the benefits of the payroll tax cut enacted by Congress and the Administration.

Trade Deficit

As oil prices have increased in recent years, the amount of money the United States spends on imported oil has risen sharply as well.  Importantly, this has been true despite a decline in oil import volumes.  Projecting forward, increased domestic oil production coupled with rising vehicle efficiency should result in continued declining import volumes for the United States. But the benefits of this trend as it pertains to the trade deficit could continue to be eroded by rapidly rising oil prices.

Here are some basic data points and a useful chart:

- Net imports of crude oil and petroleum products were as high as 60 percent of total product supplied in 2005.  In 2010, this figure fell below 50 percent and is approximately 46 percent in 2011.

- Increasing exports of refined product have contributed to this change (particularly diesel to EU and Latin America), but declining overall consumption due to the recession has played a more substantial role.

- The figures are also less compelling when looking at crude only.  Net U.S. imports of crude oil (excluding refined products) were 63 percent of supplies in 2010, compared to 66 percent in 2005.

- Even as import volumes have fallen, import expenditures have risen, because oil prices are rising at a much steeper rate.

- Imports of crude oil and products amounted to $386 billion in 2008—55 percent of the total trade deficit.  This figure fell back slightly in 2009 at $205 billion when oil prices crashed after the recession.  However, it rebounded to $265 billion in 2010 and will exceed $300 billion again in 2011.

- Between Jan 2007 and Oct 2011, the U.S. deficit in crude and product totals $1.4 trillion—52 percent of the total trade deficit.  This is more than our deficit with any regional (NAFTA, EU) or bilateral (China) trade partner.

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