Photo by Ekaterina Belinskaya
If you have been to the gas station in the last few days, you might wonder why gas prices are skyrocketing. The traditional answer is the law of supply and demand. We are in the middle of the summer, and more people are driving.
The OPEC nations, led by Saudi Arabia, have cut their production, and the warm temperatures are cutting the ability of the oil companies to refine oil into gasoline.
It sounds very straightforward until one pulls the covers off. The price of a barrel of oil comprises less than 50% of the cost of gasoline. The rising prices of a barrel of oil don’t drive up the price of gas, dollar for dollar.
Nor does the oil bought from the well immediately affect the price of gasoline.
The Industry group Petrochemical Chemical & Energy writes, “Overall, it takes an average of four weeks to get fuel from A to B. Of course, this can vary depending on a host of factors. Delays with refinery machinery, trans-Atlantic shipments, and subpar product could push the timeline forward to several months.”
There is enough oil in known wells in the United States to make up for any disruption from Russia or the OPEC nations that purposely cut back oil production to drive up the price.
Rystad Group, an industry research group, has concluded that there is more oil in the United States from tapped and untapped wells than in any other country, including Russia and Saudi Arabia. “There are seas of oil just waiting to get tapped once oil prices rebound. Texas, home to the Eagle Ford, Permian, and Barnett shale oil plays, holds more than 60 billion barrels of shale oil alone. That’s more than the untapped oil in all of China. There are also vast sums of oil beneath the ground in North Dakota, where the Bakken shale oil sits.”
Under the Biden Administration, new federal lands have been opened for drilling.
On April 18, 2022, the Bureau of Land Management (“BLM”) issued notices of oil and gas lease sales for approximately 144,000 acres of federal land in Colorado, New Mexico, Nevada, North Dakota, Montana, Utah, and Wyoming. BLM scheduled the June 2022 onshore lease sales nearly a year after the U.S. District Court for the Western District of Louisiana enjoined the Biden administration’s self-described “pause” of the federal oil and gas leasing program. There is still more oil and natural gas to be found and captured.
Nor is the problem of lack of refineries. New refineries continue to be built and operated. The newest is a 45,000-barrel-per-day refinery in Channelview, Texas, which started operating in February 2022
So, if more oil can be pumped, more oil can be refined, and an increase in the price of a barrel of oil does not instantaneously cause gasoline prices to rise, why are gas prices soaring?
It may be impossible to answer because after the oil and natural gas companies were de-regulated and after the Federal Government allowed the oil companies to become vertically integrated, meaning a company like Exxon Mobile can own the wells, the pipelines, the refineries, and the gas stations, there is no “market pressure” to keep prices down. Gas Stations can’t buy from other oil companies, refineries can’t buy from different wells, and producers can’t use other pipelines. The vertically integrated companies set the prices as they want.
This new round of gas price hikes happens just as oil companies’ profits fail to reach the historic levels of 2022 when gas was over $ 5.00 a gallon. This past quarter Exxon Mobile’s earnings, while substantial, were below stock market analysts’ projections. As were Shell Oil’s and Conoco Phillips’. While some oil companies did meet projections, all major companies saw earnings, dividends, and stock prices fall from the quarters when consumers were forced to pay over $ 5.00 a gallon.
The argument that nothing can be done appears to translate into candidates who do not want to question the oil companies’ executives and lobbyists who pay for election campaigns. But clearly, there are ways to stop the manipulation and price gouging. The State of California, angry that its consumers are paying the highest prices in the nation, has passed a law that will attempt to do just that.
Under that new law, fuel refiners that exceed the “maximum gross gasoline refining margin” can be penalized. Civil penalties are also applicable in cases where an individual or organization fails to report requested data to the division in a timely manner.
The law goes into effect on June 26, 2023, so it’ll be some time before we know how effective it’ll be at dragging gas prices down. But the law proves that if a government has the will, there are things that can be tried to protect consumers from market manipulation and price gouging.
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