Fuel prices have skyrocketed since Russia invaded Ukraine and President Biden announced a ban on oil and gas imports from Russia. But wait…. less than 10% of U.S. oil and gas imports come from Russia. What gives?
What’s Behind High Fuel Prices? [Commentary]
Fuel prices have skyrocketed since Russia invaded Ukraine. But less than 10% of U.S. oil and gas imports come from Russia. What gives?
![What’s Behind High Fuel Prices? [Commentary]](https://assets.bobitstudios.com/image/upload/f_auto,q_auto,dpr_auto,c_limit,w_920/deborah-lockridge_1768074853759_z2xmnz.png)
HDT Editor in Chief Deborah Lockridge explores the factors driving fuel spikes.
Graphic: HDT
The national average price of a gallon of diesel hit a record high of $5.25 on March 14, according to the Energy Department. When adjusted for inflation, prices are still lower than the all-time highs of 2008. However, the agency has never seen retail fuel prices increase so quickly on a percentage basis over a three-week period.
So, it’s not surprising the president on March 31 announced the largest-ever release of crude oil from the Strategic Petroleum Reserve. The announcement did cause oil prices to drop, but some analysts are concerned that the short-term gain may mean long-term pain.
Some politicians are calling for suspensions of fuel taxes, which is a terrible idea — our highway infrastructure has enough problems without its source of funding drying up.
And people are looking for someone to blame. Some point to the Biden administration and the president’s focus on clean energy, cancelling the Keystone XL pipeline, or suspending oil and gas drilling on federal land (which was later blocked).
In reality, the reasons for the high prices are far more complex.
Let’s go back to March of 2020, when the novel coronavirus, what we now call the COVID-19 pandemic, raised its ugly head.
Pre-pandemic, truckers and motorists were enjoying relatively cheap fuel prices, with diesel around $3 a gallon. But those cheap prices were the result of an oil industry that was over-producing. There had been several years of cutthroat competition in the energy industry, “when drillers overproduced, prices cratered, and more than 600 U.S. energy firms went bankrupt,” explained Rick Newman, a senior columnist for Yahoo Finance, in “5 Myths About Oil and Gas Prices.” That meant cheap gas and diesel, but it also meant financing for drilling began to dry up as investors got sick of losing money, he said.
Then the pandemic hit. Demand for gasoline plummeted as people stayed home. Diesel, of course, not so much, since trucks still had to be on the road moving goods. But gas and diesel both come from crude oil. The drop in demand caused a global glut of crude oil, so oil prices nosedived. OPEC and other oil-producing nations such as Russia slashed production by an unprecedented amount. U.S. producers, too, cut production and closed down drilling sites.
When the global economy started coming back to life, the oil industry was slow to ramp back up. Oil production is still not back to pre-pandemic levels. So even before Russia invaded Ukraine, triggering a U.S. ban on Russian oil and gas imports, fuel prices already had been steadily rising.
The higher prices have likely been drawing more producers back into the business. In fact, the Energy Department predicted in February that U.S. crude oil production will rise to record-high levels this year and next. But just like everything else, supply-chain issues for trucks and drilling equipment, and a shortage of drivers and other labor, are slowing things down.
The power of the U.S. government to affect the situation is limited. Unlike countries such as Saudi Arabia or Russia, the government can’t just tell oil companies how much to produce.
Some industry observers say the emphasis of the Biden administration on green energy creates some uncertainty for oil and gas producers, which could discourage them from investing more. But Biden has only implemented a fraction of those desired policies. And this administration is hardly alone. Governments in Europe and other parts of the world are doing the same. Remember, oil is a global commodity.
In March, I wrote about the “messy middle” between an industry fueled by diesel and one running on zero-emissions clean energy. It looks like uncertainty in fuel and oil prices is going to be a part of that mess, as governments and energy companies try to balance development of new clean energy sources with the need to keep supplying petroleum fuels for existing vehicles.
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