How to reduce gas prices
Motorists are seeing higher gas prices. Politicians are playing the blame game, pointing the finger at the Trump administration for higher pain at the pump. What can policymakers do?
Because oil is a globally traded commodity, different factors affect the supply of and demand for oil, which affects the price Americans pay at the pump.
According to the International Energy Agency, global oil demand increased 1.6 percent in 2017, significantly higher than the average increase of 1 percent over a decade.
It’s worth noting that higher gas prices often result from a healthier economy. In the United States and around the world, stronger growth means businesses and families are using more oil.
On the supply side, OPEC and its friends decided to cut back production at the end of 2016 and throughout 2017 in an effort to increase prices. With 2016 output levels as the baseline, 21 countries have been reducing production by a total of nearly 1.8 million barrels per day.
Countries such as Saudi Arabia exceeded their production cuts, while others produced more oil than they said they would. The collapse of the Venezuelan and Angolan economies resulted in substantial decreases in oil production, so OPEC is easily meeting its reduction targets.
OPEC’s strategy is unlikely to be sustainable, though. The cartel has never been able to restrict supplies and control oil prices for very long, because oil comes from a diverse set of suppliers (both OPEC and nonOPEC), many of whom have a strong incentive to cheat and boost oil production above their quotas.
Another good sign: The extraordinary technological advancements now being used to extract oil in the United States is making OPEC’s strategy even more ineffective over the long term. The Energy Information Administration reported that U.S. crude production surpassed 9.3 million barrels per day in 2017, a 5 percent increase over 2016 levels. In November 2017, the U.S. crude oil supplies surpassed 10 million barrels per day, breaking a record high from nearly 50 years ago.
The U.S. is on pace to overtake Saudi Arabia and Russia as the world’s largest oil producer. The latest projection from the EIA estimates that U.S. production could reach nearly 12 million barrels per day in 2019.
Nevertheless, policymakers are calling the administration to “do something” to alleviate drivers’ agony every time they fill up their tank. But higher prices driven by market forces are not a compelling reason for the federal government to intervene in energy markets.
Congress and the Trump administration policymakers should eliminate government-imposed barriers and policies that artificially raise prices.
Streamlining the permitting process for oil extraction and transportation will get more oil to the market. Transitioning environmental protection to the states will allow more efficient and accountable management.