I wrote an essay a year ago this week that became my most popular Forbes article ever: Who Is To Blame For Rising Gasoline Prices? The storey received over a million views and a flood of feedback.
A year later, the same process I discussed then continues to account for the majority — but not all — of the increase in gasoline prices during the last 18 months.
To summarise, shortly prior to the Covid-19 epidemic, the United States’ oil output reached an all-time high of approximately 13 million barrels per day (BPD). As the pandemic progressed, demand for oil plummeted, and output fell in lockstep. By May 2020, oil production had fallen to 9.7 million BPD, a decrease of more than 3 million BPD.
When the pandemic devastated oil demand in 2020, some oil corporations went bankrupt. Due to the grim prognosis, some tiny stripper wells — which make for a sizable portion of US oil output — have been permanently capped. Certain employees departed the oil business. Demand continued to recover as people returned to work, but output slowed due to the aforementioned challenges.
Following the collapse of production in 2020, the United States has been playing catch-up as demand has recovered. Rising oil costs — as a result of limited supplies — are the primary cause of the gasoline price increase.
Oil prices increased by 32% in the final three months of the Trump Administration, as demand recovered. From an average monthly price of $39.40 per barrel in October 2020 (source), West Texas Intermediate (WTI) averaged $52.00 per barrel in January 2021, Trump’s final month in office.
The average monthly price of WTI increased by 19 percent in the first three months of the Biden Administration, to $61.72/bbl. Prices increased another 17% in the subsequent three months, to $72.49/bbl. After that, prices fluctuated between $70 and $80 a barrel until January 2022. Additional information is included below.
‘Crypto Rainmaker’ From Ukraine To Testify At Senate Hearing On Digital Assets
Many people blamed President Biden for the entire price increase, but it actually began before Biden took office. Furthermore, it was not only President Trump’s or Vice President Biden’s fault — because these price spikes occurred globally.
To be clear, both presidents’ stimulus spending had some effect. When individuals have additional funds, they spend them. Consumption of products increases, resulting in inflation. While stimulus money played a slight role in the gasoline price increase, it was mostly a result of the oil price spike caused by the imbalance created by the Covid-19 demand collapse.
According to the most recent data available from the Energy Information Administration (EIA), the United States currently produces 11.6 million barrels per day (BPD), which is still 1.4 million BPD shy of pre-pandemic levels. For a while longer, supply will trail demand, maintaining upward pressure on fuel prices.
However, let us now explore something that President Biden influenced. I frequently emphasise that a President has limited levers to influence fuel prices in the short run. These are largely 1) handles. Oil from the Strategic Petroleum Reserve is released; 2). Changing the gasoline tax; or 3) being embroiled in a conflict with a major oil producer. All of these factors have the potential to have a rapid influence on gasoline prices.
Oil prices surged over the 2021 range when it appeared as though Russia was massing soldiers on Ukraine’s border. WTI’s average price increased to $83.22/bbl in January 2022. When Russia invaded Ukraine in February, the average price increased to $91.64/bbl. I ascribe this increase to Vladimir Putin in particular, as well as the global response to the invasion.
However, there is one action for which President Biden is accountable. Biden’s decision to halt imports of Russian oil triggered a surge in oil prices above $120/bbl. They have temporarily recovered from that level, but the inefficiencies associated with rerouting Russian imports and backfilling that oil will continue to maintain a premium on prices.
I am not passing judgement on whether this was the correct or incorrect decision. And I concur with Biden’s assessment that the decision was made in response to Russia’s actions against Ukraine.
While you may believe that prohibiting Russian oil was the correct approach, it does have an effect on fuel prices. It is perhaps President Biden’s first action that had an immediate, short-term effect.
I say “arguably” because Biden approved certain Strategic Petroleum Reserve oil releases, which may have had an effect. However, if they did, it was brief and only gave a minor, transient supply boost in a critically undersupplied market.
Many feel that President Biden’s suspension of the Keystone XL pipeline had an effect on gasoline prices. However, this is a possible long-term effect. While the Keystone XL decision has no immediate effect on costs, its absence may very possibly result in future price increases. On the other hand, Biden’s decision to restrict Russian oil has an immediate effect on pricing.