Are your wallet and gasoline tank better off now than they were a year ago? Motorists across the United States are paying about 60% more for gas today than at the same period in 2020, with the average gallon of fuel costing $3.414. This is par for the course in the present inflationary environment, where sticker shocks have become the norm in nearly every sector of the post-pandemic economy. President Joe Biden wants to prove that it is not his fault, so he is searching for a scapegoat for the explosion in energy prices, mainly the oil and gas companies. But will his administration uncover “illegal conduct”?
FTC, You’re Oil Biden Needs
In a recent letter addressed to Federal Trade Commission (FTC) Chair Lina Khan, President Biden requested the organization investigate if there is “illegal conduct” transpiring across the U.S. contributing to the seven-year high in gasoline prices. The president alluded to “mounting evidence of anti-consumer behavior” by oil and gas firms.
The letter stated that prices at the pump are sky-high despite a drop in the price of unfinished gasoline. The price of unfinished gas has fallen about 5%, while gas prices have risen 3% over the last month. “This unexplained large gap between the price of unfinished gasoline and the average price at the pump is well above the pre-pandemic average,” the president noted.
Biden added that Exxon and Chevron, the largest oil and gas corporations in the United States today, are poised to double their net income, engage in stock buybacks, and raise dividends.
“The bottom line is this: gasoline prices at the pump remain high, even though oil and gas companies’ costs are declining,” Biden wrote. “The Federal Trade Commission has the authority to consider whether illegal conduct is costing families at the pump. I believe you should do so immediately.”
The FTC replied that it is also “concerned” and will be “looking into” the matter. But are the administration’s concerns based on fact or attempts to weasel their way out of taking responsibility for contributing to the energy fiasco unfolding in one of the world’s largest oil and gas markets?
Fueling a Better Understanding of Energy Markets
The American Petroleum Institute (API) slammed the president for starting a “distraction from the fundamental market shift” and the “ill-advised government decisions.” The oil and gas lobbying firm explained the basics of the current energy markets: Demand is soaring, and supply is failing to keep up with these developments.
Frank Macchiarola, senior vice president for policy, economics, and regulatory affairs, purported in a statement that the administration has exacerbated the imbalance by restricting access to the nation’s energy supply, canceling infrastructure projects, and begging the Organization of the Petroleum Exporting Countries (OPEC) to boost production. “We should be encouraging the safe and responsible development of American-made oil and natural gas,” Macchiarola averred.
Other industry experts agree that skyrocketing gas prices are a reflection of the recent trends rather than price-fixing. Moreover, U.S. output levels are still below pre-pandemic levels, OPEC and its allies, OPEC+, are loosening the taps at a modest pace, and consumption is accelerating worldwide. To put the situation into perspective, when crude oil prices crashed to below zero in the early days of the coronavirus pandemic, the Cushing, OK storage facility was almost full. In November 2021, this location is running on empty because simultaneous demand is unfolding across the globe.
But what about the president’s initial contention regarding the gap between unfinished gasoline and gas prices at the pump? Indeed, there are two reasons. The first is that gasoline stations are hesitant about changing prices multiple times in such a volatile marketplace. The second is that sometimes prices, particularly in the energy sector, can travel through the system at a sluggish pace.
Overall, gas prices are based on fundamentals and, since the energy crisis is an international one, it is highly unlikely that Big Oil is colluding with stations to jack up the cost at the pumps. Patrick DeHaan, head of petroleum analysis at GasBuddy, might have said it best: “This will be a bridge to nowhere.”
Deal With It
While the president did not trigger the current conditions, he added fuel to the fire by putting the kibosh on integral pipelines and discouraging production by canceling new drilling. The U.S. is producing about 11.1 million barrels per day, down from around 13 million prior to the pandemic. The crude oil rig count is still about one-third less than at the start of 2020. West Texas Intermediate (WTI) crude oil futures are up 63% this year, and RBOB gasoline futures have soared 65% year-to-date. Unless governments worldwide do something drastic, such as releasing supply from strategic reserves, market analysts do not expect to see substantial declines anytime soon. Suffice it to say, motorists will need to brace themselves: $4-a-gallon may be coming next summer.
~ Read more from Andrew Moran.