The largest disruption in oil supply on record is further widening the economic divide within the United States.
Based on pricing data from oil information service companies and federal demand statistics, the cumulative spending by U.S. consumers on gasoline and diesel has increased by approximately $45 billion compared to the same period last year, largely due to the impact of the Iran conflict. The sharp rise in oil prices has significantly eroded the wage earnings of middle- and low-income groups, making their economic prospects far less favorable than those of wealthier demographics.
Simultaneously, the asset scale of investors in oil and gas companies continues to expand. Strong performance in the energy sector has boosted corporate earnings reports, adding momentum to the record-breaking rally in U.S. stocks, which is increasingly driven by artificial intelligence. While rising inflation and borrowing costs continue to pressure ordinary households, many economists believe that high-income groups will continue to propel the U.S. economy forward.
During his campaign, former President Trump pledged to halve Americans' energy expenses. Now, with high oil prices contributing to a decline in his poll ratings and a drop in consumer confidence to historic lows, he has argued that the oil price surge also benefits the United States, a nation rich in energy resources, as its oil exports have reached record highs.
Isabella Weber, an economics professor at the University of Massachusetts Amherst, stated: "The core issue is who benefits from these changes? Looking at different income brackets in the U.S., the real winners are only the wealthiest at the top. The vast majority not only fail to gain but bear a heavier economic burden."
Weber views this oil shock as a redistribution of wealth. Her research on the aftermath of the Russia-Ukraine conflict indicates that about half of the substantial profits earned by U.S. energy firms in 2022 flowed to the top 1% of earners in the country.
The S&P 500 Energy Sector Index has surged 32% this year, partially offsetting the impact of inflation on shareholders. Data from energy analysis firm GeoEnergy Assessment shows that overall profits for oil and gas companies in the first quarter of this year reached a multi-year high. With few new oil and gas drilling projects in the U.S. and continued disruptions to shipping through the Strait of Hormuz, profits and dividends for energy companies may rise further in the coming months.
The rise in oil prices has also boosted fiscal revenues for regions like Alaska, North Dakota, and various towns in western Texas and New Mexico. However, with low willingness among U.S. energy companies to increase production and advancements in drilling technology, the shale oil and gas industry's golden era of creating numerous high-paying jobs has ended.
Data from Baker Hughes shows that the number of oil drilling rigs in the U.S. has dropped by 11% over the past year. According to the U.S. Department of Labor, employment in the oil and gas extraction industry has fallen to its lowest level since records began in 1972.
For Wall Street, improved industry productivity combined with strict capital expenditure controls by companies has further enhanced returns on investment.
GeoEnergy Assessment data reveals that the combined free cash flow of ExxonMobil, Chevron, BP, Shell, and TotalEnergies in the first quarter surged 84% from the previous quarter to $36 billion. Meanwhile, the free cash flow of 37 surveyed U.S. small and mid-sized oil and gas companies rose 53% year-over-year, totaling $17 billion.
However, the high cash flow in the industry has not yet translated into large-scale dividends and stock buybacks. Senior analyst Mark Young of the agency noted that the oil price surge driven by the conflict fully materialized only in the latter part of the quarter. If this trend continues into the second quarter, cash flow for energy companies is expected to grow rapidly.
Since April 1, the average price of U.S. crude oil has been near $99 per barrel, a 59% increase year-over-year, with no signs of a full recovery in Persian Gulf shipping. Amid global supply chain price increases, U.S. pipeline operators responsible for transporting crude oil to refineries, crude processing companies, and ocean-going tanker operators have also seen their stock prices rise.
Current U.S. fuel prices remain below the 2022 peak, and the proportion of household spending on fuel relative to income is at a multi-decade low. Economists suggest that increased tax refunds this year have also helped Americans navigate the initial phase of rising oil prices.
Oliver Allen, Senior U.S. Economist at Pantheon Macroeconomics, told clients on Thursday: "However, tax refund amounts will drop significantly in May, at which point households will face the full pressure of soaring fuel prices."
U.S. Department of Transportation data shows that in March alone, U.S. airlines spent nearly $1.3 billion more on aviation fuel compared to the same period last year. JPMorgan predicts that if gasoline prices remain at current highs through 2026, U.S. consumers' annual spending on gasoline will increase by $172 billion from last year, not including additional diesel costs.
The economic pressure from rising oil prices has further widened the consumption gap between different groups.
Data from the Bank of America Institute shows that middle- and high-income groups continue to increase spending on air travel, accommodation, and cultural tourism compared to last year, while low-income families have begun cutting back on such expenses. Companies like fast-food chain Wansfood targeting the lower-end market and pawnshop operator EZ Group have also highlighted the operational pressures from high oil prices in recent earnings calls.
Research from the New York Federal Reserve indicates that during the oil price spike in March, households with annual incomes below $125,000 reduced their frequency of refueling.
Maxim Pinkovskiy, Economic Research Advisor at the New York Fed, pointed out that unlike during the 2022 oil price surge, high-income individuals' fuel consumption this month was almost unaffected.
He explained: "The biggest difference from 2022 is that high-income households now have higher net worth, with financial assets contributing significantly to this wealth growth."
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