Effect of Motor Fuel Tax Increase Uncertain

BY HANNAH SPANGLER, FarmWeek

Illinois residents may see changes in gas prices this summer, but with multiple influential factors, it may be too soon to tell if prices will rise or fall.

Starting July 1, the Motor Fuel Tax will increase by more than 3%. This is an annual measure that automatically increases the tax to account for inflation. The fuel tax is used to fund construction projects at both the state and local levels.

According to the Illinois Department of Revenue, the gasoline tax will rise from 45.4 to 47 cents per gallon — an increase of just over 3.5%. The taxes on diesel fuel will also rise from 52.9 to $54.5 center per gallon, an increase of around 3%.

“While the 3% increase may not seem like much, in addition, we have federal and local taxes, as well as sales tax on fuel in Illinois,” said Jacqueline Witte, GROWMARK energy adviser. “These add up.”

However, taxes are not the only factors contributing to fuel prices. According to Witte, the fuel tax is just the second highest contributing factor.

“The cost of crude oil is the largest component influencing fuel prices,” Witte told FarmWeek. Crude oil prices make up more than 50% of U.S. gasoline prices, she explained. And prices were above $80 per barrel as of June 27, a 12-12.5% increase for 2024.

A rise in oil prices may mean higher fuel prices this summer, but there are still other price-contributing factors that remain uncertain. One of these is consumer demand.

“Gasoline demand has trailed 2023 for most of this year, and analysts believe economic uncertainty may suppress demand this summer,” said Andrew Gross, AAA spokesperson.

With less demand growth, global stocks increase and prices are reduced.

But demand for fuel heading into the July 4 holiday could shake up predictions. Witte said demand tends to peak in the summer, raising fuel prices.

Witte said any unexpected refinery outages can also shift a price forecast, but luckily none are facing the Midwest at the moment. Additionally, geopolitical tensions such as the war in Ukraine or conflicts in the Middle East continue to threaten the crude oil industry, underpinning prices.

On the positive side, Witte said 2024 gasoline stocks are above last year’s level. This softens prices and adds a cushion against price spikes in seasons of high demand or when faced with unexpected events.