Trump has no choice but to break his $2 gas promise

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This month sees the expiration of President Donald Trump's self-imposed deadline for one of his more fantastical pledges: To cut Americans' energy costs in half. As falling approval ratings and recent Democratic election wins attest, this one matters.

Regretfully, Trump's score card is wanting here. Average utility prices have risen faster than inflation this year, featuring prominently in some of those blue election victories.

Gasoline is better: It is down by 8.5% since Trump's inauguration, but that's still a fair bit short of 50%. Equally, at $2.85 per gallon currently, the average price remains a lot higher than Trump's other pump price target, below $2. (All data are through Dec. 23). Trump attempted to reset that in his speech on the economy earlier this month, saying prices were below $2.50 "in much of the country."

Even that diminished plaudit didn't hold up: Only 10 states appeared to be at that level when I checked in the following day with Patrick De Haan of GasBuddy. And those 10 definitely didn't include populous ones like California, Florida or Texas. Trump may yet try to widen his threshold of victory to $3, but it is worth digging into why the pump price is a particularly troublesome metric for the president to choose to yoke himself to.

An odd thing about that 8.5% price drop is that crude oil has plunged by 25% (and that includes the recent bump related to rising tension with Venezuela). Given that crude typically accounts for just over half the pump price, this would point to a drop of more like 13%, all else equal.

In per gallon terms, crude has fallen by 46 cents, but the pump price by only about 27 cents. The gap, equivalent to around $8 a barrel, can have ended up in three potential places: Refineries, the distribution and gas station networks, or tax coffers. It wasn't really taxes. Most of the crude oil drop seem to have accrued to refiners and marketers.

This fits a longer-term trend; one that presents a growing headwind to Trump, or any president, making pump price promises. Here is how the four big components of gasoline prices have moved around from 2000 through October 2025, using monthly data from the Energy Information Administration.

Oil drilling and refining produce globally traded commodities that swing wildly in price. Taxes, meanwhile, creep up only glacially. The odd one out is distribution and marketing, where costs have risen pretty steadily by about 200%. Here's the same chart, but now using trailing 12-month averages to smooth things out and indexing the numbers.

The average cost per gallon of distributing and marketing gasoline has increased from 18 cents per gallon in 2000, on a trailing average basis, to more than 50 cents today. This year alone, it went from 50 cents in January to 63 cents in October.

Two dynamics are at play here, one short term and the other long. Gasoline inventories turn over quickly, so service station owners buy fuel wholesale quite frequently. Gas stations owned by or affiliated with integrated oil companies or major refiners are supplied directly, but these constitute a small minority of the roughly 150,000 locations retailing fuel in the US, around 10% according to the National Association of Convenience Stores.

Paradoxically, they suffer when crude oil prices and/or refining margins rise quickly, because their costs go up and, in order to stay competitive, they usually eat some of that. Conversely, when crude and refining costs drop, the station operator tries to make some of that back by reducing pump prices more slowly. This long established 'up-like-a-rocket-down-like-a-feather' aspect to gasoline explains some of what happened this year as crude prices slumped.

As that chart shows, there has been a structural increase, too, accelerating after 2018 to more than double the rate of inflation. This has nothing to do with consolidating gas station giants gouging customers: 60% of convenience stores, which sell the vast majority of road fuels, are single-site operations, about the same proportion as a decade ago.

Rather, it's the struggles of those mom-and-pop stores that are key. This was R Andrew Clyde, the soon-to-depart chief executive of Murphy USA Inc., one of the bigger gas station companies, speaking to investors in March about the impact of the pandemic:

"Fuel volumes fell 50%. For the marginal retailer, they've only recovered to 80%. They're still down 20%. Ours have recovered fully. We've seen a doubling of industry fuel margins … as a result of the marginal players' inability to maintain the profitability that they had before because they lost the volume, they lost the traffic."

In other words, single-site operators are trying to spread higher rents, wages, utility bills and what-have-you across fewer gallons, raising their breakeven price (a similar dynamic has juiced electricity prices amid years of flat demand). This benefits more efficient operators like Murphy which, incidentally, has generated the third-highest total return of any US oil company over the past decade, at 572%, trouncing Exxon Mobil Corp. and the S&P 500. Who says retail is dead?

For Trump, it doesn't help that Clyde describes Murphy as serving the fastest-growing, largest consumer segment: "People who live paycheck to paycheck." This is a structural trend, largely divorced from global oil dynamics. US gasoline demand has peaked due to demographics and efficiency, which even Trump's rollback of fuel economy standards won't change according to his administration's own analysis.

In essence, there is now over a dollar of sticky cost embedded in each gallon in the form of marketing and taxes, more than a third of the current price. Meanwhile, the ongoing closure of refining capacity since the pandemic, along with increased gasoline exports, puts upward pressure on another 15% of the price.

There is, of course, always ‘drill-baby-drill' to keep cutting the remaining element, crude oil. Relying on that to get average pump prices below $2 would imply a pandemic-like collapse to less than $25 a barrel, however. As it is, the drillers elated at Trump's election initially were, by this fall, telling the Federal Reserve Bank of Dallas things like: "The uncertainty from the administration's policies has put a damper on all investment in the oilpatch. Those who can are running for the exits."

It takes a lot to somehow break a pledge to drivers and simultaneously demoralize oil producers, but that is how Trump enters a midterms year.

(COMMENT, BELOW)

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal's Heard on the Street column and a reporter for the Financial Times's Lex column.

Previously:
• 09/14/23: Two odes to Elon Musk's genius need a grain of salt
• 03/21/22: Ukraine war ends the world as we know it