Introduction:
Whenever we go to fill up the tank, gaze at the pump prize and note it’s 55 cents higher than two days ago, irritated, sometimes angry, we blame the president. It’s easy: He makes the big bucks and lives for free in a big house, so why not? I find it relaxing, may sigh, and then pay mega dollars. The disappointing truth is that POTUS has nothing to do with the price of gas. The various causes are discussed below.
What presidents occasionally do when the price rises above the normal range, is take gas from the National Reserve and market it at a lower price. In the short term, it helps some, but usually generates sharp public criticism that the president is compromising American security. Clearly can’t win on gas.
Vehicle gasoline is refined from crude oil, adding an initial expense. Thus, crude price has a major influence on the price at the pump. (Note: West Texas Intermediate Crude is the benchmark for North American oil prices}. But, there are other reasons: supply/demand, taxes, inventories, season of the year: people drive more in warm weather and refineries switch to a more expensive summer blend. And then there are domestic and international crises.
Two examples of the latter are a hurricane damaging a refinery on the Gulf Coast, temporarily raising regional prices, and a major global supplier being removed from Western markets. This occurred in 2022 when Russia invaded Ukraine, and EU Europe turned to other sources. As a result, just in the US, gas prices in 2022 rose to a record level of $5.01/gal.
OPEC: The Unpredictable Agent amid Mid-East Turmoil:
The Organization of Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization with 12 member states1 (2024) and a secretariat in Vienna. It was formed by 5 countries in 1960 to counter US domination of the crude market. Its mission is to regulate the global oil supply by reaching consensus on members’ production. Russia is not a member, but is a key ally, working closely with OPEC.
The 12 members[1] control some 45% of the world’s crude exports and over 70% of its proven reserves. It exerted its peak collective power in 1973 when it embargoed exports to the US and the Netherlands, Israel’s major allies during the Yom Kippur War (US gas prices rose fast), Its influence still exists, but has waned as the US very successfully pursued fracking and multiple additional energy production sites were developed in the North Sea, Canadian oil sands and Africa.
When crude prices rise and become a Washington concern, one of the White House’s earliest calls is to Riyadh to discuss Saudi Arabia’s increasing production. The closer and expanded US/Saudi defense relationship is present in any such negotiation. But depending on the Kingdom’s priorities at the moment, it may or may not agree (Russia or Iran complain).
Is the Israeli/HAMAS/Lebanon/Yemen (and maybe Iran) War affecting American and NATO Europe’s oil deliveries and their pricing? Given Israel produces little oil and Gaza none, the market has been relatively stable. However, the Houthi (Yemen) attacks on Red Sea shipping (Iran supported) have disrupted an important trading route. Very large shipping firms like Maersk, have begun avoiding the Suez, opting for the long and expensive route around the Horn of Africa. Thus, some shipped goods costs rise. However, oil prices have fluctuated, but not seriously—yet. If Iran, the 3rd largest OPEC producer becomes a combatant, there is no question oil supplies would decline and pricing would rise.
Gas Prices in America (Summer 2024):
Policy makers and economists usually do not include gas prices when calculating inflation rates because they are unpredictable and volatile. But, the US Consumer Price Index tracks its cost. According to a June 2024 report, gas prices fell 3.8% from May and are down 2.5% since June 2023. There is little doubt that for Americans gas prices affect their perception of inflation.
This year, so far, is something of an anomaly because the traditional, thus expected Summer gas price rises (more miles driven in warm weather and refineries substitute more expensive summer blends) hasn’t happened. Driver demand is down from 2023, possibly related to economic and political uncertainty at home and wars overseas. The result: US gas prices have declined. The fundamental factor is the price of benchmark West Texas Crude. It has declined from $115/barrel in summer 2022, to approximately $77.91 as of 8/01/24. This translates into an average increase between 1/01/24 – 9/01/24 of only +39 cents. And the US national average price (8/01/24) is $3.49. Hawaii has the highest at $4.66/per gallon.
Conclusion:
The next time I pull up next to the pump on High Street in Chestertown, and notice, again, that the price is up 27 cents from last week, I’ll still grumble and may blame the president because there are too many actual culprits and their rationale is too complicated. However, I have taken a step to moderate any emotional reaction by taping the following list to the dashboard: Gas Prices: Netherlands – $6.48/gal.; Norway – $6.27/gal.; Denmark – $5.93/gal.; Italy – $5.96/gal. and UK – $5.79/gal. Should even cheer up the guys in Honolulu.
1OPEC Members (2024): Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Libya, UAE,Algeria, Equatorial Guinea, Gabon, Congo & Nigeria..
Jim Bogden says
Gasoline is cheaper than bottled water.
Bill Anderson says
I am kind of curious if Mr. Timberman has forgotten or simply conveniently decided to omit that the United States was energy independent and gasoline prices were reasonable and lower when Mr. Biden entered the Oval Office.
Then during the initial days of Mr. Biden’s administration Executive Order actions were taken to limit the production of petroleum, cancel the Canada to U.S. pipeline construction that would have delivered 800,000 barrels of inexpensive oil to America every day, and other such actions which would result in increasing gasoline prices in an effort to convince Americans to purchase electric vehicles. Those actions added to the inflationary trend in the nation without doing a lot to persuade people to opt for electric vehicles.
James Nick says
It is a constant source of wonder and amazement as to whether Mr Anderson’s reply to Mr Timberman is a case of willful ignorance or just another mis- or under-informed trumper trying his best at demagoguing on a grassroots level.
Mr Anderson bemoans both the loss of US energy independence and increasing gas prices caused by the loss of 800,000 barrels/day of cheap Canadian oil – all Biden’s fault, of course.
Trigger Warning – Facts Ahead…
On Energy Independence
If energy independence means the country is producing more energy than it consumes, then both trump and Biden checked that checkbox.
From [1] dated 3/11/2024: “The United States produced more crude oil than any nation at any time, according to our International Energy Statistics, for the past six years in a row. Crude oil production in the United States, including condensate, averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and global record of 12.3 million b/d, set in 2019. Average monthly U.S. crude oil production established a monthly record high in December 2023 at more than 13.3 million b/d.
The crude oil production record in the United States in 2023 is unlikely to be broken in any other country in the near term because no other country has reached production capacity of 13.0 million b/d….”
So, in fact, the US has been and continues to be energy independent by one definition.
On the Loss of Cheap Canadian Oil
We don’t need Canadian tar sands oil. Since we’re already producing more oil than we consume, it just gets exported. It becomes part of a global market which means the oil will be exposed to international supply and demand disruptions that affect global prices. And as Mr Timberman correctly points out, OPEC is the principal controlling force for setting global oil prices. If we were to put more oil out on the world market, OPEC would simply react by lowering their production to keep the global supply constant and prices at their preferred level.
On Cheap Gas Prices
From [2]: “… If we look at gas in inflation-adjusted terms, except for a few short-term spikes, it was actually trending downward from 1918 through 1972… From 1972 through 1981 [during the Arab Oil Embargo], prices moved up sharply, and by 1980-81 everyone was suffering from sticker shock as nominal gas prices rose above $1.00 for the first time, but then gasoline resumed its downward trend…
… technological improvements due to hydraulic fracking allowed the price to drop both in nominal and inflation-adjusted terms, although overproduction caused a reversal in 2016. Since then, the industry has leveled out, and prices have stabilized. Over the longest term, we can see that [gas prices have] actually been trending down from 1918 to 2022.”
1. https://www.eia.gov/todayinenergy/detail.php?id=61545
2. https://inflationdata.com/articles/inflation-adjusted-prices/inflation-adjusted-gasoline-prices/#comments
Thomas Timberman says
Mr. Anderson raises a very sensible question. The US has produced and exported more oil than it has imported since 2011, i.e. 8.5 million barrels vs. 10 million per day. Initially, the logic would argue that we satisfy the domestic demand and if there’s any left over, store it in the Strategic Reserve. Doing so, would make the US “energy independent”. However, all oil is not created chemically equal, which makes refining a very important price point and explains why we import.
The US produces what is called “light sweet”, while what we import is thick, contains lots of Sulfur, hence it’s name: “Heavy Sour”. Dr. Daigle, Professor of Petroleum Engineering at Utexas-Austin , explained the quandary: “All that variation in the chemistry of oil means that you can’t refine all oil the same way. They have to go through different processes. And our refineries were designed to deal with Heavy Sour.”
A decade ago, shale fracking produced much more Light Sweet. The Sweet vs. Sour problem is exacerbated by US pipelines and refineries being in the wrong places. Thus, to feed America’s existing refineries, the US imports foreign Sour crude, which is cheaper, because the foreign producers don’t want to pay the higher costs to refine it.
Moreover, importing lower priced Sour crude that matches our refining capacity, also avoids confronting the mega $Billions involved in constructing a new system. Such an undertaking is now more difficult and expensive, because investments in renewable energy are making it more difficult to attract investment in fossil related infrastructure. In sum, we buy and refine the cheaper crude and sell our more expensive Light Sweet to places that can refine it.
And there is Canada, America’s closest neighbor/friend. We buy the majority of our imported oil from them. Not only do they give us a discount (don’t have the infrastructure to export much beyond the continent), but it comes with a national security benefit. For the past decade, US imports from the Middle East have declined as those from Canada have increased. The following data shows the 2022 US imports from the 5 largest exporters:: Canada: 52%, Mexico: 10%, Saudi Arabia: 7%, Iraq 4% and Columbia 3%.
Ed Plaisance says
Wish everyone could read this…and grasp it. Having lived a great portion of my life between Iran and Saudi Arabia, I am fully aware that the president of the USA does not control the price of gasoline here.
Joan Davenport says
Small correction. The US crude preserve is “The Strategic Petroleum Reserve”. Oil, not gas, is pumped from it. It is contained in a few salt domes on the Gulf coast. “The National Petroleum Reserve” is in Alaska. It used to be called Naval Petroleum Reserve # 4.