Are Higher Energy Prices Really Biden’s Fault?

One implication of short-term tight supplies in energy markets will likely be louder calls for oil and gas leasing on federal lands. Above, drilling rigs on public lands in California. Photo: Bureau of Land Management/John Ciccarelli, Flickr Creative Commons. Click to enlarge.

TipSheet: Are Higher Energy Prices Really Biden’s Fault?

By Joseph A. Davis

It’s a safe bet, given today’s hyperpartisan politics, that between now and November’s midterm elections, President Biden will be blamed for higher gasoline prices.

But fact-based journalists who track energy and environment stories would do well to remember that there is very little a president can do to actually influence oil or gasoline prices.

The price of gasoline depends to a great degree on the price of crude oil, which in turn is set largely by forces on a world market that in many important ways is still “free.” The price of oil goes up when demand for it goes up, when the supply available goes down or when the risk of supply interruptions induces stockpiling.

 

Many oil industry players

— including OPEC — are

constantly trying very hard

to manipulate the market.

 

Many oil industry players — including OPEC — are constantly trying very hard to manipulate the market. Journalists should neither underestimate nor overestimate what they can do.

 

Uncontrollable forces at play

For many decades the party out of power has blamed the party in power when gasoline prices have gone up at the pump. This year, especially, the factors driving up crude oil prices have little to do with presidential decisions.

Among the uncontrollable forces: the COVID-19 pandemic, sanctions on Iran and the war in Ukraine. Plus, major supplier nations like Mexico and Venezuela are rejiggering their nationalized oil/gas industries. And geopolitical and terrorist conflict in Africa and the Middle East complicate things further.

Oil traders have been betting for weeks (or longer) on what the market effect of a war in Ukraine would be. Much of the world’s oil is traded (and thus priced) via a futures market. Traders buy or sell a contract binding them to delivery of a certain grade of crude at a certain place at a certain time. Those who bet shrewdly make money, and the futures market allows risk to be priced in.

By the way, many of the same dynamics apply to natural gas (fossil methane).

[Editor’s Note: You can find more explanations of the oil market in our Toolbox on oil market data and our Backgrounder on how turmoil in world oil markets tips environmental scales too.]

 

Pressure on government policies

In practical terms, there are really no federal laws or regulations that set the price of oil, gas or gasoline. That will not keep players and partisans from claiming otherwise. Usually, such claims are part of political efforts to bend public opinion to support a particular government policy or action.

Let’s look at some key examples:

• Using the Strategic Petroleum Reserve: The United States started the Strategic Petroleum Reserve in 1975 after the Arab oil embargo had stretched lines at gas stations around the block. Its original purpose was to make the nation less vulnerable to supply disruptions. We are no longer dependent on Arab oil; much of our imported oil comes from Canada and Mexico. More recent presidents have tried to use the reserve to influence the oil price. But the 600-plus million barrels in it could not for long sustain the United States, which consumes just over 18 million barrels per day. Any effect on price would be short-lived. This is one of the options the Biden administration is considering (may require subscription) as war begins in Ukraine.
• Leasing federal lands: One of the oil industry’s most vociferous demands is for more oil and gas leasing on federal lands — onshore and offshore. The reason the industry likes federal leasing is that it is an incredible bargain for them. Even the Interior Department, in a recent report, has said that leasing rules are easy for companies to take unfair advantage of. Oil companies often buy leases without developing them as a way of booking reserves that pad their bottom line. Even when oil companies are in a hurry, it takes years to actually drill after the lease sale. Nonetheless, industry will often claim more leasing is the solution to short-term tight supplies.
• Adjusting U.S. refinery capacity and output: The amount of refined gasoline produced by U.S. refineries has a lot to do with the price of gasoline. Unfortunately, domestic refinery capacity is somewhat tight. The fact is that the 180 or so refineries in the United States have been producing near or above 90% of capacity for quite a while. The pandemic actually reduced refinery output. Over the years, companies have sometimes been accused of keeping capacity tight. There is little the feds can do to raise refining capacity if the industry is unwilling to invest in it.
• Impose economic sanctions on Russia: Russia is a big supplier of crude oil and natural gas — especially to Europe. Pipelines and proximity make this so. Oil traders and governments have easily assumed that threatened U.S. post-invasion sanctions on Russia would curtail these exports. The United States has convinced Germany to suspend the Nord Stream 2 gas pipeline, a major source of revenue for Russia (and a major vulnerability for fossil-fuel-dependent European nations). The big surprise, however, is that Biden and NATO pulled their punches on any boycott of Russian oil and gas. At this moment, the calculation was that oil and gas sanctions could hurt NATO as badly as Russia. Biden specified that sanctions were “specifically designed to allow energy payments to continue.” It may ease the pain on Russia, but it could also mitigate political damage to Biden and the Democrats as November midterms approach.

Joseph A. Davis is a freelance writer/editor in Washington, D.C. who has been writing about the environment since 1976. He writes SEJournal Online's TipSheet, Reporter's Toolbox and Issue Backgrounder, and curates SEJ's weekday news headlines service EJToday and @EJTodayNews. Davis also directs SEJ's Freedom of Information Project and writes the WatchDog opinion column.

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* From the weekly news magazine SEJournal Online, Vol. 7, No. 9. Content from each new issue of SEJournal Online is available to the public via the SEJournal Online main page. Subscribe to the e-newsletter here. And see past issues of the SEJournal archived here.