⛽ OPINION: Gas Prices Could Go Higher Before Declining; NYC Drivers Are Feeling The Impact

Many NYC TLC drivers are getting crushed 😅 at the pump ⛽. Why are gas prices so high, where can prices head and how is it impacting the NYC for-hire transportation industry?

Jun 8

$9.45/gal!! Thanks to Matthew for this pic of the Chevron in Mendocino, CA- the most expensive station in the country and the highest price we've recorded. It's over $3/gal higher than the California average and is a definite outlier. #gasprices

AutoMarketplace NYC is written by Dawood Mian, Founder of AutoMarketplace.com. Dawood covers the NYC for-hire transportation industry and general automotive-mobility news. Check out AutoMarketplace on YouTube ▶️ & TikTok ♪

⏱️Quick Summary

⛽ Gas prices could head higher over Summer, before correcting in Fall
🛢️ Crude oil market dynamics are the main driver of higher gas prices
🚕 NYC yellow cab industry likely needs to push for CPI-related taximeter adjustment sooner, rather than later
💵 NYC TLC drivers and fleets will likely adjust their vehicle investment decisions from SUVs to sedans & hybrids
⚡ EV adoption will eventually come, but might be delayed in the NYC for-hire transport industry for several reasons, including costs & charging infrastructure

The only silver lining of the record gas prices many NYC drivers are currently facing, is that it's not as bad as California (see header image) where $10 per gallon gas 👀 might be a reality soon! The NYC area’s $5 (regular) to $6 (premium) per gallon price is not only significantly impacting all NYC area drivers’ finances, but has a particularly harsh impact on NYC for-hire transportation professionals 🚕, who can’t easily cut back on gas consumption given it’s a fundamental input of the job!

Why gas prices ⛽ are up is a complex topic that has many moving parts and many different opinions, so we are only going to discuss a less controversial, high level view of what’s happening. We also want to explain why we believe higher gas prices 📈 will likely linger for some months. At a certain point gas prices can only go so high before "Demand Destruction" 💥occurs and prices plummet 📉. "Demand Destruction" is an informal economic term used to describe a situation where prices of goods & services go so high, that people significantly (and all of a sudden) cut down on almost all non-essential spending related to those goods & services.

Why Are Gas Prices So High?

Let’s first understand what influences gas prices.

Source: U.S. Energy Information Administration (EIA)

Given the above, it may come as no surprise that New York State’s recent gas tax holiday 🧾 has an immediate impact on prices of between 5% to 10%.

Governor Kathy Hochul @GovKathyHochul

New Yorkers are feeling pain at the pump, so today we’re cutting the state gas tax through the end of the year — now delivering over $600 million in direct relief. From the Hamburg Town Board to the Governor’s office, I’ll always fight to get New Yorkers the relief they need.

That being said, the majority of gas pricing relates to price of crude oil and the cost of delivering & refining that oil so it can be pumped into a vehicle. To simplify, gas prices are at records most directly related to oil prices being at record highs (see clip below). As long as oil prices remain high, gas prices are going to remain elevated. Oil prices, like any other market, is about supply and demand. Right now, oil supply is in major imbalance with demand (not only in America, but globally).

Bloomberg TV @BloombergTV

Oil prices have risen more than $40 this year and their pressure on global inflation isn’t relenting. Persistent supply shortages are driving up costs, despite the decision of OPEC+ to accelerate output hikes trib.al/yj4Lkhb

Generically, two things (or a combination of both) need to happen for gas prices to come back down.

📉 Demand needs to drop to match supply (AND / OR)
📈 Supply needs to increase to match demand

Where Are Gas Prices Heading?

Before I get into this, if I could definitively answer where oil & gas prices are heading, I probably should dedicate 100% of my time to that endeavor and then go retire on a beach 😎 🏖️. Since I'm not an oil & gas oracle, I'll quickly summarize what the leading experts, from firms like Goldman Sachs, have to say. Remember these experts live and breath the oil & gas industry and advise on related investments. In summary, most leading oil experts believe crude oil prices could still increase another 25%+ over the Summer, before normalizing. In other words, gas prices (outside of direct government intervention) are likely to remain elevated or even go higher!

Perhaps by the Fall or Winter the hope is that supply and demand get closer to equilibrium again and prices can come down.

Javier Blas @JavierBlas

OIL MARKET: Goldman Sachs tells clients it expects Brent crude to average $140 a barrel between July and September (and because US strength and sky-high refining margins, consumers will 'experience' retail prices like if Brent has surged to ~$160 a barrel) #OOTT

Different Impacts Gas Prices Have on NYC TLC Industry?

Outside of increased daily expenses (less earnings for NYC TLC drivers), persistently elevated gas prices impact the NYC TLC industry in several ways. For example, decisions around increasing yellow cab fares 🚕, taximeter rates have not been adjusted since 2012, needs to likely be accelerated. If it takes too long to adjust taxi fare rates, it will not be sustainable for NYC yellow cab drivers, delaying a recovery the industry hopes for. In other words, if drivers aren't paid enough to compensate them for the increased cost of doing business, they aren't going to drive a yellow cab.

Another impact is that NYC TLC drivers and fleets will likely look to buy or lease vehicles that are more fuel-efficient or not reliant on fuel at all (i.e., EVs). Currently, the house 🏠 view at AutoMarketplace.com, is that it's difficult for most NYC-based drivers to adopt EVs. The initial cost and lack of charging infrastructure are the main impediments. For example, a modestly loaded Tesla can easily run over $50,000!

Shana Orczyk Sissel, CAIA @shanas621

I don't know what's worse, my friend in California who just posted a video of themselves at the gas pump at $7.28/gallon or the friend driving back to LA from Palm Springs in a Tesla with 2 kids under 5 who had to wait 3 hours at a charging station to charge up her car. 🥴

Layer on the lack of “quick” charging infrastructure, most NYC TLC drivers will be cautious in adopting EVs, at this moment. HOWEVER, over the next several years this will change and EVs will get adopted en masse, but probably over a longer time period than many may appreciate. Finally, drivers’ preference for SUVs and luxury cars reliant on premium gas will likely decline or be contemplated much more deeply (i.e., a TLC driver will only buy or lease a luxury SUV if they know they can make money with luxury bases and private clients).

Finally, and this is a strongly held AutoMarketplace.com view, we believe the lack of independent EV auto repair & service shops, layered on with higher than expected lifetime EV maintenance costs, are not well understood by most.