Why are gas prices so expensive in France, not the US?

Written by By Robin E. Martin, CNN

While the crisis in the Middle East might be at its peak, the refugee crisis continues to unfold globally. President Donald Trump’s travel ban and the dismissal of the US ambassador to the UN have created further controversy in the global consciousness.

What do gas prices have to do with it? Well, fuel prices affect overall global supply and demand, which in turn affects oil prices. What’s more, “consumer discretionary spending constitutes about 17% of total spending and roughly 50% of which happens outside of home,” said Marc Zen, regional economist for Asia Pacific at Wells Fargo.

“Consumers in countries with high gasoline prices are likely to spend more on non-necessities or are willing to forego non-essential costs like travel, meals out and outdoor activities, which in turn will reduce overall consumption — thus reducing income and therefore economic growth,” he said.

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“In Japan, for example, 30% of disposable income is spent on travel, making it the country with the highest proportion of consumer discretionary spending. Conversely, nations where gasoline prices are lower may have higher levels of consumption.”

Cheaper alternatives

Why is gas cheaper in some places and more expensive in others? That depends largely on the infrastructure of the fuel. Energy and air pollution can be a growing concern in some locales, and the U.S. price disparity is particularly stark, particularly for California, which has stricter pollution laws than the rest of the country.

But these issues also vary by region. For example, it’s not uncommon for Los Angeles to be hit with red zone driving alerts for several days at a time.

“The issue is that many U.S. cities had green zones that converted to red zones in December 2015 in order to raise more money to keep city roads safe,” said Robert L. Cialdini, President Emeritus of the United States Research Council.

“The effect is that your gasoline costs two to three times more in areas of higher traffic congestion and pollution and the result is that fewer drivers are going to California,” he said.

Similarly, the switch to more fuel-efficient vehicles in Europe also can cause local gas prices to skyrocket. In France, for example, the U.S. dollar is much weaker and cheaper against the euro than it is against the franc. In the US, the dollar is strong against the euro, while the pound is nearly 60% weaker against the euro, making the British dollar worth twice as much as the French franc.

Looking toward the future

Wells Fargo forecast that gasoline prices will start to retreat “later this year and into 2019.”

“We’re forecasting gasoline prices to average $2.24 a gallon in 2018 compared to an average price of $2.65 a gallon this year,” said Zen.

“We think the number will still be a little higher, a little bit more than $2.30 a gallon, but we definitely expect it to fall at least a couple of pennies a gallon.”

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