Why gas prices are so high right now


Image from the article titled The Real Reason Gas Prices Are So High Right Now

Photo: Rich Pedroncelli (PA)

Amid a further surge in gas prices on Wednesday, the Biden administration announced it had asked the FTC to investigate if the oil and gas companies were doing anything illegal to manipulate prices. Republicans retorted that it was a cheap political coup and blamed President Joe Biden’s energy policies.

But the truth, experts say, is not as easy as both sides claim. In fact, the main driver may not be the oil companies or the politicians. Instead, the price spike is largely driven by the whims of international producers and US investors.

The price of gas has increased by 50% compared to last year, according to AAA data. This same data shows that the average price of a gallon in the United States is $ 3.41, although a gallon is even more expensive in some states. California leads the way, with gasoline costing an average of $ 4.70 per gallon.

“Big Oil is fueling climate change and siphoning money from struggling families with high gasoline prices, while spending huge sums to lobby climate deniers and keep us from moving to cheaper and more alternatives. clean, ”said Democratic Senator Ed Markey. tweeted Wednesday.

Meanwhile, the American Petroleum Institute, the oil and gas industry’s largest lobbying arm, accused the administration of “canceling[ing] major infrastructure projects ”(ie the Keystone XL pipeline) in a declaration published Wednesday.

When I asked Clark Williams-Derry, an energy financial analyst at the Institute for Energy Economics and Financial Analysis, to explain what exactly determines the cost of gas at the pump on any given day, he laughed. “It is both a simple question and a complicated question,” he said. “The simple explanation is that it’s the cost of oil, plus the cost of refining it, plus the cost of bringing it to the refinery from the gas station, plus the cost of running a gas station,” plus taxes. The point is, each of these things is complicated.

There are many variables that go into determining the cost of each of these steps. But the price of crude oil is often what gets the most attention, thanks to how much they can change in the blink of an eye. Crude oil prices are the bulk of what comes after the dollar sign at the pump, and even a little oversupply or a little less oil in the market can have a drastic change in world prices.

“Oil prices are basically the most volatile thing in this equation,” Williams-Derry said. “When you look at gas prices, you should look first and foremost at the price of oil.”

And contrary to the image that proponents of fossil fuels likes to project, the supply of oil and gas does not move in a perfectly free market. Internationally, oil production is largely under the control of a veritable cartel: the Organization of the Petroleum Exporting Countries, or OPEC. This coalition of 13 oil-producing giants, including Saudi Arabia, the United Arab Emirates, Venezuela and Iran, has a disproportionate influence on production and prices on a global scale. In 2018, OPEC members controlled 79.4% of the world’s proven oil reserves.

“A lot of oil prices are tied to the decisions of major producers, including OPEC, whether or not to use their spare capacity,” Williams-Derry said.

Nationally, investors in U.S. gas companies – which have seen a growing share of global production over the past decade with the shale boom – have a lot of influence on the movements of producers in Texas and elsewhere. in the country.

OPEC and American companies have just gone through a major upheaval. The coronavirus pandemic has lowered demand for oil so low that the price of a barrel of oil hit briefly negative dollars, down from highs of around $ 100 a barrel before the pandemic. This volatility has had big ramifications as parts of the world try to get back to normal. OPEC ordered producers to significantly reduce production when prices hit their lowest point; even though prices are going up now, they are stick to their disciplined diet, like a fitness fanatic who faithfully follows a zero-carb diet.

In the United States, investors are pretty scared both by the covid-19 pandemic and by the fact that the fracking boom has also produced a lot of oil, over-supplying the market and pushing down prices. Lower prices mean less money to line their pockets. Williams-Derry said during the shale boom, US oil companies spent more on drilling than they earned on the price of oil. As a result, US investors, Williams-Derry said, “now punish anyone who produces.”

This lower supply and now growing demand have helped drive crude oil prices higher than last year. Against this background, it is easy to see that the claims of the API and its supporters about the administration’s actions ring true. “Anyone who blames a politician for high prices ignores the basic dynamics of the market,” Williams-Derry said. “Blaming someone who’s in place today for a problem that started last year doesn’t make a lot of sense.”

The flip side is also true. Here at Earther, we are all for empower oil companies for misdeeds (of who the are numerous). But it’s unlikely that an FTC investigation will reveal anything that producers haven’t been doing in decades, in the open. Regarding oil as a global commodity, contrary to what API claims, Following oil on the market is not necessarily what producers want. The interests of oil producers do not always match the best at the pump. Which in itself is a pretty good argument to detach the economy from fossil fuels.


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