Blame Biden? Gas prices explained
The reality is that he, and American consumers, are prisoners to a fickle global oil economy.
If you've filled up your car or truck at a gas station recently, you might've noticed some nifty little stickers that somebody stuck on the pump featuring President Joe Biden pointing at that ghastly price per gallon on the digital display, exclaiming, “I did that!”
Clever. But the pain at the pump is no laughing matter. Is Biden really to blame, though, for gas prices that this week hit an all-time record high? Or, is it “Putin's price hike,” as Biden claims?
The truth, as usual, is somewhere in the middle. Soaring cost of energy has preoccupied world leaders and industry executives over the past few days at CERAWeek, Houston's influential oil and gas conference that resumed after a two-year pandemic hiatus.
And the crisis is front and center at kitchen tables across America. How we got here is a complex question whose answers are often rendered with political bias and profit motivations. We'll attempt to shoot you straight on four burning questions dominating the national discussion.
First, are high gas prices Biden’s fault?
The short answer is no.
Prices are high mostly because demand is soaring as the global economy recovers from the COVID-19 pandemic: people are traveling, governments are spending heavily and supply can't keep up because U.S. oil production hasn't returned to pre-pandemic levels .
Meanwhile, geopolitics were driving prices up even before Russia's invasion injected more instability. The global oil market effectively has one price that's vulnerable to supply disruptions and regional conflicts, as well as the oftenmysterious whims of a Saudi-led group of 13 oil-exporting nations known as OPEC.
Typically, OPEC protects consumers from major price spikes by promptly upping production. Yet for reasons that remain unclear, OPEC has only increased oil supply modestly at 400,000 barrels a day every month for the last few months, which analysts say isn't enough to bring down prices. Biden basically begged OPEC to increase supply faster in November, only to be rebuffed.
So why isn't OPEC cooperating? Obviously, the cartel benefits from high prices, but notably, so does one of OPEC's allied producers: Russia. Saudi Arabia and Russia were once strategic competitors on the oil market, but the two nations have cooperated lately.
Unfortunately, Biden lacks the warm relationship that previous U.S. presidents have enjoyed with Saudi Arabia, whose Crown Prince Mohammed bin Salman reportedly declined a request to speak to Biden in recent weeks. But we can't castigate Biden for drawing Saudi ire when we support the admirable stances that provoked it: namely, Biden's criticism of the Saudis' war with Yemen and the killing of Washington Post journalist Jamal Khashoggi, widely believed to have been murdered by Saudi agents.
Don't count on OPEC coming to our rescue anytime soon.
What happened to U.S. oil production?
Remember the halcyon U.S. shale boom era that was supposed to plant our flag as an energy independent nation for years to come? Domestic production in West Texas, North Dakota and New Mexico was raising the roof on the market, loosening OPEC's domineering grip on global energy pricing. In 2018, the U.S. became the largest oil-producing nation in the world.
While the U.S. still leads in production, by 2019, Wall Street had tired of the debt-fueled, boom-bust cycle of shale drilling. Political headwinds against long-term investments in oil helped spur the energy market to shift toward renewable sources, making solar and wind markedly cheaper over the past decade.
Amid the pandemic, investors demanded more fiscal discipline from oil companies just as demand cratered, banks started snubbing the industry, bankruptcies ensued, and tens of thousands of oil and gas workers were laid off.
At CERAWeek, oil executives have been calling on Wall Street to loosen the leash on investing in new crude supply. Private companies who don't answer to shareholders are beginning to open up new drilling areas and domestic production is rebounding, but some experts believe it could take years for shale drilling to meaningfully bring down prices here at home, owing to a tight labor market and global supply chain issues.
Yes, but isn’t the Biden administration slowing domestic oil and gas production?
It's a frequent talking point among Republicans and conservative news outlets, and there's some truth to it.
Biden entered the White House talking
up historic investments in renewable energy, few of which have come to fruition, that would speed America's transition to a decarbonized future. That didn't exactly inspire a rush of investments in domestic drilling. At times, the administration seemed to adopt a hostile posture and industry officials have complained of lacking dialogue.
Recently, we've been glad to see more balanced rhetoric, notably at CERAWeek where climate envoy John Kerry said gas would play a key role in a low-carbon world and Energy Secretary Jennifer Granholm pressed domestic producers to ramp up production, assuring them that Biden is “ready to work with you” and that a greener future can coexist with a short-term drilling hike.
“We can walk and chew gum at the same time,” Granholm said.
That's nice to hear. It would have been nicer a year ago. Investors are understandably skittish about pouring resources into what ultimately may be a long-term solution to a short-lived problem.
Producers should do all they can, of course, and remember America's national security alongside their bottom line. But it's not helpful when Biden suggests that companies can just flip a switch on a pump jack to bring down oil prices. It takes time.
Still, anybody arguing that Biden's policies have torpedoed drilling is wrong.
True, industry has called on the administration to renew five-year offshore leases, end the moratorium on drilling on federal land, and approve more natural gas applications. True, the Biden administration recently stopped processing new oil and gas leases and permits due to a court ruling in a legal fight over how to calculate the cost of climate change and Biden has considered raising royalty rates that drilling companies must pay on oil and gas.
Yet shale drilling mostly takes place on state or private land, with federal land making up only about 9 percent of U.S. production. All in all, a recent analysis found that the Biden administration approved 35 percent more drilling permits than President Donald Trump did during his first year in office. The U.S. also produced an average of about 11 million barrels of crude oil per day in Biden's first year compared to Trump's 9 million barrels per day.
True, the administration did kill the permit for the Keystone XL pipeline, which would have carried more than 800,000 barrels of crude per day from Canadian oil sands to the Gulf Coast. But it's unlikely that pipeline would have been open by now and even the Trump administration acknowledged in 2017 that it would have a “minimal” effect on gas prices. Meanwhile, crude oil is still coming in from Canada via other pipelines and rail, and imports have nearly doubled since 2008.
The administration is smartly nudging the market toward renewable energy while understanding that transition must happen gradually. The measures to rein in the small percentage of drilling the federal government controls reflect the urgency of combating climate change. While we still need fossil fuels in the short-term, the magnitude of this current energy crisis is largely because the global economy is still beholden to oil and gas. The clean energy revolution won't happen unless the world's superpowers take action to get us there.
How high will the Russian oil ban raise gas prices?
Biden's decision to ban Russian oil imports, the latest in a series of crippling economic sanctions, was important but highly unlikely to produce the mayhem Russian Deputy Prime Minister Alexander Novak warned about when he said it could drive crude prices to $300 per barrel.
Though Russia is the world's thirdleading oil producer, its product makes up only 8 percent of U.S. oil imports and began declining last year. Still, the move will likely nudge inflation higher, eating into consumer budgets and potentially stunting economic growth. Some analysts believe average national gas prices could rise to nearly $4.50 per gallon this month.
The ban will hit some harder than others. Gulf refiners, such as Valero and Marathon, rely on cheaper, unfinished oil from Russia to produce gasoline and diesel. California, where gas prices average $5.57 per gallon, imports Russian gasoline directly and will likely feel more pain.
Ultimately, oil and gas prices are governed by a convergence of market forces, not one person, company or nation. As much as Biden would probably love to strap on a hard hat, jump on a rig and shout, “drill, baby, drill!” the reality is he, and American consumers, are prisoners to a fickle global oil economy. That's not political spin; that's Economics 101.