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U.S. Gas Prices Rising, Who’s to Blame?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Bruce J. Carter
June 17, 2022

U.S. gas prices started rising in November 2020. In fact, in April 2020, for the first time in history, future oil prices on the market were negative. It was known that oil companies were paying others to take their oil (Knowles, 2022). This ordeal led to a pivotal disincentive to drill for more crude oil (Knowles, 2022). However, the spike in gas prices has been polarized. The Organization of the Petroleum Exporting Countries (OPEC), the Russian invasion of Ukraine, the price gouging of oil investment companies and disinformation about the Keystone Pipeline can all play a role in reducing U.S. gas prices.

According to peer research, OPEC controls about 50 percent of the petroleum supply and more than 90 percent of the petroleum reserve (The Editorial Board, 2021). OPEC members feel threatened by the United States resurgence in Renewable Fuel Standard (RFS) bio-energy production as their supply strategies disrupt oil prices globally. In handling the climate and energy crisis, OPEC-Led countries, including Russia, have not increased oil production. Also, this was coupled with the killing of Jamal Khashoggi, which caused the new United States administration to make their stance clear to the Saudi crown prince Mohammed bin Salman. In recent years, Saudi Arabia, considered the swing producer by OPEC member states, decided not to increase the oil supply, which currently produces 400,000 barrels per day, since July 2021 (Patterson & Goldfarb, 2022). The current high gas prices are caused by fluctuating oil demand following the disruptions caused by Saudi Arabia and Russia on global oil markets.  

Russia Invasion

Russia exacerbated the situation because of the massive natural gas production, which drastically reduced the oil prices before the recent COVID-19 pandemic. With the United States and Saudi Arabia competing for market share in the global oil markets, Russia similarly decided to reduce crude oil production. This decision worsened oil prices, causing them to fall to less than $1 per barrel (Patterson & Goldfarb, 2022). However, the COVID-19 pandemic, coupled with Russia’s recent invasion of Ukraine, sharply increased the oil prices to more than $100 per barrel. In turn, the oil market was unable to cope with the sharp decline and then increases in the prices of oil (Patterson & Goldfarb, 2022). These effects also cascade to domestic markets where oil output in the United States is unsustainable for the local demand. Consequently, the absence of oil market equilibrium caused by Russia’s actions has resulted in fluctuating oil prices, affecting the United States as the market leader in oil and gas supply.

Oil Companies Taking Advantage of Supply and Demand by Price Gouging

The big oil executives of Pioneer Natural Resources Company, and Diamondback Energy company, name a few of the largest stakeholders in fossil fuel that are passing record profit shares back to shareholders and not to the consumers. However, it is up for debate whether oil companies contribute to price gouging. On the one hand, these firms are affected by the actions of global oil suppliers, which impede production. Conversely, gas firms require consumers to pump more funds into the oil market (Camp et al., 2020). To that end, these large gas and oil companies who invest in fossil fuel have shareholders who confluence the increase in gas prices either in response to global supply disruptions or as an opportunity to increase production by charging consumers higher prices (Knowles, 2022). 

Would the Keystone Pipeline Have Helped?

The disinformation and polarization surrounding the Keystone Pipeline have been part of the debate. The Keystone Pipeline will not help because the project cannot make the United States energy independent (Knowles, 2022). Also, the Keystone Pipeline was only 8 percent complete when President Biden canceled the project permit in January 2021 (Knowles, 2022). However, in President Biden’s first presidential year he granted 3,557 permits for oil and gas drilling. The opposition against this pipeline makes it difficult for the project to resolve the oil crisis. The 1,200-mile project was expected to carry 830,000 barrels of crude oil from Canada to the U.S. environmentalists and landowners and the government strongly rebuffed the pipeline (The Editorial Board, 2021). From an opposing perspective, this pipeline would have taken years to be built, and little is known about how much oil the Keystone Pipeline would have produced. Lastly, it’s critical to understand this because oil is already being produced from Canada through rails and other pipelines (The Editorial Board, 2021).

Conclusion

We live in a global oil market. Recently, OPEC Saudi’s-Led and Russia’s stance to increase and decrease oil supply has destabilized the market. Being energy independent does not mean gas prices will not increase. However, if policymakers applied the concept that most economists recommend—that you produce as much oil as you consume—the gas price upsurge would be discernible during any crisis or uncertainty in the oil market. Because of the current situation, Saudi Arabia and Russia are threatened by the U.S. administration’s resurgence in RFS oil and natural gas industry. Ultimately, if the U.S. federal government does not control oil companies, policymakers may continue to offer oil companies more subsidies than what they are already receiving.


Author: Bruce J. Carter has a Ph.D. in Public Policy, and Administration, and he’s co-authored Water Wars: Sharing the Colorado river with Doug Cooper. He received his Executive Certificate from Harvard University in Public Policy: Social, Economic, and Foreign Policies. For Bruce, writing is a form of political engagement. While serving in the U.S Military, Bruce has deployed around the world.  Email: [email protected] Twitter: @BC_bcarter06

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