Who is responsible for gas prices?

News analysis

According to some experts, Americans feel that the rise in gasoline prices is due to President Joe Biden’s policy decisions, Russia’s invasion of Ukraine, and several other factors.

Gasoline currently costs about $ 4.30 per gallon on average. Gas buddy.. This is the most expensive since the United States increased its refining capacity in the 1920s. With diesel for about $ 5, transportation of goods is also more expensive and burdens the economy as a whole.

By comparison, in early 2020, before the COVID-19 pandemic hit the United States, gas sold for about $ 2.50 per gallon.

A series of events led to this point.

COVID-19 (new coronavirus infection)

Demand plummeted due to the pandemic and subsequent blockades. Oil producers only started cuts at the end of March, leading to oversupply. For some time, the WTI Crude Oil Price Index turned negative as storage was full and future delivery contract holders had to pay to get oil out of their hands. Gas prices have fallen to about $ 1.75.

The paintings drawn by the established media at the time were dark. The Trump administration mismanaged the COVID crisis, there was no effective cure, and early vaccine promises were unrealistic. After all, this photo didn’t reflect reality, but it did affect business sentiment. The industry has prepared for a long recession and curbing demand.

But the recovery was much quicker. A few months later, especially the Red States began to open up the economy again (some did not close from the beginning), and the vaccine was certainly delivered in the fall of 2020, giving confidence to the masses of the Blue States in particular. .. It was possible to resume it.

By March 2021, both gasoline demand and gas prices had almost returned to pre-pandemic levels. However, oil production did not return to pre-pandemic levels, even as demand continued to rise and prices continued to rise. There are several reasons.

Climate policy

Shortly after President Joe Biden took office in January 2021, he issued a series of presidential orders, launching what the government has proposed as a government-wide effort to combat climate change. A major part of the agenda is the so-called “decarbonization” of the economy, which means that much of the oil industry will be gradually eliminated. At the same time, major financial institutions have joined their own climate initiatives and promised to “decarbonize” their investment portfolio. At a show showing that these were not empty words, Biden stopped issuing new drilling leases on federal land and abolished the Keystone Pipeline for transporting oil from Canada.

This move has hampered the prospect of investment in the oil industry. If you just need to dispose of your infrastructure right away, what are its uses for building capacity?

For this reason, many analysts have blamed Biden’s current gas prices.

“He’s running jihad on fossil fuels … and that’s why we’re tackling the problem we’re working on,” said a former director of the White House National Economic Council under the Trump administration. One Larry Kudlow commented in a recent EpochTV interview.

Phil Flynn, senior market analyst at The Price Futures Group, criticized “a short-sighted and dangerous war against fossil fuels that are flashing back at almost every level.” Recent blog posts..

The Biden administration has pointed out that US oil production is on the rise. That’s true. US oilfield production reached 11.6 million barrels per day in the first week of March, up from 10.9 million barrels the previous year. However, it is still well below the 13 million in March 2020. Producers cannot be expected to reopen overnight, but production has increased by only about 6% over the past year. By comparison, the Oilers were able to increase production by about 16% in 2018 and more than 13% in 2019.

Putin’s fault

In his recent move, Biden sought to condemn Russian President Vladimir Putin’s recent invasion of Ukraine.

Putin argued that only a few percent of US oil consumption came from Russia. But that can also be misleading. Russia is the second largest oil producer in the world. The invasion of Ukraine was expected to encourage sanctions on its energy sector, which would force much of the world to abandon Russia’s oil. Therefore, traders who are hoping for a tighter supply will bid on the price of future shipping contracts.

However, many have accused Biden of invading.

Kudlow pointed out that Putin invaded Georgia in 2008 and annexed Crimean in 2014. In both cases, it is consistent with major oil price hikes.

“He has money from his oil profits to do that …. When oil prices are low, there is no contact from Putin,” he said.

Flynn also said US policy “helped Vladimir Putin try to use his fossil fuel monopoly as a military and political weapon.”

According to George Santos, a veteran energy investment banker who previously worked at Citibank and Goldman Sachs, gas prices would have been expected to continue to rise even in the absence of an intrusion.

“It accelerated things a bit, but we’ll still reach these prices,” he told the Epoch Times.

Financial inflation

Oil companies may have been expected to try to increase production even while being hampered by the federal government. But Santos suggested that big companies, in particular, aren’t enthusiastic enough to dig deeper because they enjoy income from highs.

“I’m not saying it’s entirely their fault, but they also have some responsibility,” he said.

Under normal circumstances, when oil prices rise, producers cannot just sit down and receive profits indefinitely. At some point, they need to increase production and lower prices. Otherwise, people will spend less and businesses will eventually lose money. However, gasoline sales have been stable over the past year, despite pre-pandemic gas prices rising above pre-pandemic levels (down 2-5% month-on-month in 2019). .. “Oil may have reached levels of easing demand,” Flynn said, only after the extreme hike following the invasion of Ukraine.

“Open the spigot”

Kudlow and others urged Biden to make immediate policy changes to encourage more oil production.

“If you stop the dog, I think it will return to 13.5 million barrels or 14 million barrels per day in 6 months. And the futures market will start to reflect that, so prices will go down. And it’s from Putin’s pocket. Steal money. “