Gasoline Prices Up Due to Global Supply-Demand Issues, Russian Invasion of Ukraine

Gasoline Prices Up Due to Global Supply-Demand Issues, Russian Invasion of Ukraine

A gas pump at a gas station in McLean, Virginia, on June 10. Photo by Saul Loeb/AFP via Getty Images.

Experts previously told us that imbalance increased the price of crude oil and gasoline, prices that climbed even higher after Russia, one of the world’s largest oil exporters, invaded Ukraine in late February. In response to the attack, the U.S. and other nations put sanctions and bans on Russian oil  — creating more volatility in the global market.

Despite those factors, campaign ads from Republican politicians and groups have falsely claimed or suggested that President Joe Biden and Democrats are solely to blame for the prices that motorists are paying at the pump.

“When Joe Biden was elected, gas cost $2.43,” says the narrator of a National Republican Senatorial Committee ad attacking Democrat John Fetterman in Pennsylvania. “Biden started choking oil production his very first day. Now, five bucks a gallon.” 

In an ad released last month, Republican Sen. John Thune of South Dakota, who is running for reelection, said “gas prices doubled” when “Democrats took control” and “limited oil production” and “shut down the Keystone pipeline.”

An ad from Republican Rep. Jaime Herrera Beutler of Washington, who is also seeking another term in Congress, claimed, “Gas prices are skyrocketing because of D.C. bureaucrats’ war on American energy production.” The ad says Herrera Beutler supports more oil and natural gas production “here at home.”

But energy analysts also have said that neither U.S. crude oil production nor the cancellation of the Keystone XL pipeline is what is driving prices up.

 Why Have Gasoline Prices Increased?

It’s true, as some of the ads say, that the U.S. average weekly price for a gallon of regular gasoline has more than doubled since Biden has been president. It went from $2.38 the week ending two days before Biden was sworn in on Jan. 20, 2021, to a record of more than $5 the week of June 13, according to the most recent EIA data. 

The daily figures from AAA show the average national price per gallon of regular gas was down to $4.84, as of July 1.

But gas prices began rising before Biden’s inauguration. When he took office, the average weekly price had already increased about 60 cents from a low of $1.77 a gallon in April 2020, under then-President Donald Trump.

And according to those who analyze energy markets, the primary reason prices increased toward the end of 2020 and then in 2021, is because the demand for oil around the world began to exceed the available international supply.

U.S. gasoline prices follow gyrations in world oil markets, which depend on global (not domestic) supply and demand,” Alan Reynolds, an economist and senior fellow at the Cato Institute, wrote in a May 10 post.

“What happened to world oil markets in 2020 was a global pandemic, with falling oil and gas prices followed by a sizable loss of oil and gas production capacity in the U.S. and elsewhere,” he said. “What happened in 2021 was mostly the phasing‐​out of governmental lockdown schemes which allowed production, commerce, and transportation to bounce back faster than oil and gas production could.”

This resulted in gasoline prices increasing in the U.S. and abroad.

“Rising crude oil prices and increased gasoline demand contributed to the average U.S. retail price for regular grade gasoline increasing to $3.01 per gallon (gal) in 2021, the highest average nominal price since 2014,” the EIA said in a January 2022 post.

As of May, the EIA said that more than half of the cost of gasoline in the U.S. was based on the price of crude oil. The remainder was determined by a combination of federal and state taxes, distribution and marketing, and refining costs and profits.

eia gas what we pay may2022 | Gasoline Prices Up Due to Global Supply-Demand Issues, Russian Invasion of Ukraine | The Paradise News

Further complicating matters, Russia launched a military attack on Ukraine on Feb. 24. That ongoing conflict has contributed to even higher prices this year.

“What happened to crude oil and gasoline prices in 2022 was the Russian invasion of Ukraine, though partisans falsely deny the link between war and oil markets and instead blame President Biden for U.S. gasoline prices,” Reynolds, who served on President-elect Ronald Reagan’s transition team in 1981, wrote in May.

In its Short-Term Energy Outlook released in early June, the EIA said: “Russia’s actions in Ukraine, sanctions imposed on Russia because of those actions, and the resulting departure of many private American and European companies from Russia have contributed to disruptions in global crude oil supply and availability.”

Those disruptions have increased crude oil prices, which have affected what U.S. residents are paying.

“Current U.S. gasoline prices reflect high crude oil prices brought on by geopolitical risks related to Russia’s further invasion of Ukraine, and associated sanctions and private sector boycotts of Russia,” the EIA’s analysis said.

Wrong Reasons for the Price Increases

Regardless of those facts, many Republicans and conservative groups have attempted to place most, if not all, of the blame for the current price crunch on the president and congressional Democrats.

In addition to the ads from the NRSC, Thune and Herrera Beutler, an ad the American Action Network is running in Maine says Biden and Democratic Rep. Jared Golden “turned off more American energy production” and “put the brakes on pipelines and future drilling here at home.” The ad’s narrator says, “Now, gas prices and heating oil cost more than ever.”

Another AAN ad airing in Kansas says “gas prices are the highest ever on record” after “Biden, Davids and the liberals in Washington attacked American energy production, halted pipelines, hamstrung explorations.” The ad urges viewers to “tell Congresswoman Sharice Davids to help open American energy production and lower the price of gas.”

But experts have told us that domestic crude oil production, and the often-cited Keystone XL pipeline cancellation, are not the reasons for high gas prices.

Keystone XL, which was originally proposed in 2008, would have transported oil from Canada through the U.S. to Gulf Coast refineries. It was officially canceled in June 2021, months after Biden revoked a permit that developers needed to complete the project. 

However, the pipeline “wouldn’t have been online by now under any circumstances,” Tom Kloza, the global head of energy analysis and a co-founder of the Oil Price Information Service, told us in late February. TC Energy, Keystone XL’s owner, had projected that the pipeline, which would have been an extension of the existing Keystone pipeline system, would not have been placed into service until 2023 at the earliest.

Then, in March, for a story about how both Democrats and Republicans have spun the facts about domestic oil production, Kloza told us that the price of oil “doesn’t really have much to do with US crude production.” 

U.S. crude oil production has gone down in recent years — dropping about 8% before Biden took office, from 2019 to 2020, and another 1.1% in 2021, according to the EIA. But that’s because of the pandemic.

Abhi Rajendran, head of global oil/downstream markets, North America Energy Research at Energy Intelligence, told us earlier this year that after the price collapse in early 2020, companies greatly reduced their capital expenditures, and there has been only “a very modest recovery” since. It will take time for supply to increase, he said, because the pandemic also affected labor, oilfield service supply and equipment supply.

“Covid had a major impact on where we are today by cutting global and US oil production, production that came online again far slower than we’ve seen demand recover,” Patrick De Haan, head of petroleum analysis for GasBuddy, which tracks fuel prices, explained to us in an email. “In addition, due to a large decline in demand, some refiners shut down their plants after failing to sell them. They were hemorrhaging money during the pandemic.”

De Haan has said that the decline in U.S. refining capacity due to COVID-19 is another factor contributing to high gas prices now.

In Biden’s first 14 months in office (ending in March), the U.S. produced an average of 11.24 million barrels of crude oil per day, according to the latest EIA data. That’s about 1.3% less than the nearly 11.39 million barrels produced per day in the last 14 months under Trump.

Last month, the EIA projected that U.S. crude oil production would average close to 12 million barrels per day in 2022. If that happens, it would be the second highest annual average on record – and within 3% of the average production of nearly 12.3 million barrels per day in 2019. The EIA expects the U.S. to produce an average of almost 13 million barrels per day in 2023, which would be a new record.

Biden did sign an executive order in his first week in office putting a pause on new oil and natural gas leasing on federal lands and water, an executive action that was blocked by a Louisiana federal judge in June 2021. That same month, the Interior Department also suspended the Trump-approved Coastal Plain Oil and Gas Leasing Program in the Arctic National Wildlife Refuge.

But Samantha Gross, director of the Energy Security and Climate Initiative and a fellow in foreign policy at the Brookings Institution, told us in March that “Biden’s slowing of federal leasing is a SMALL issue for producers, and has made no difference at all in what is being produced today.” That’s because it would take years for companies to start producing oil from any new leases, she said.

Rajendran also told us at the time that the Biden administration “has very little … direct responsibility for where we are from a supply standpoint.”

Biden actually has been urging U.S. oil companies and other major energy-producing nations to increase production, drawing criticism from environmentalists who want to see the country less dependent on energy from fossil fuels — a stance that was a focal point of Biden’s 2020 presidential campaign platform.

And since last fall, Biden has authorized the release of more than 200 million gallons of crude oil from the U.S. Strategic Petroleum Reserve, which some experts predicted could reduce crude oil prices by a few cents.  

Biden’s ‘Small’ Impact on Prices?

But Biden’s hands are not completely clean in the current situation, according to De Haan. 

There’s no denying Biden has some blame for rising #gasprices, but it is far far from 100%,” he tweeted on June 26, in response to another Twitter user’s purported “analysis of why the gas prices situation is ALL Biden’s fault.”  

De Haan told FactCheck.org that Biden has sent unclear signals about fossil fuels to oil companies that may be looking for reasons to invest. That confusion has played a minor role in gasoline prices, he said in an email.

“Of today’s high prices, he shares a small part of the blame,” De Haan said of Biden. 

“Biden could offer clarity on the future of fossil fuels which, if done right, may give oil companies more direction if investments they make into raising production or adding refinery capacity will be worthwhile,” he said. “That’s where I think he’s done a poor job.”

Instead, De Haan said Biden has thrown oil companies under the bus for high prices, requested an investigation into possible price gouging, and made conflicting comments about wanting to shut down fossil fuels. “That’s not a conducive climate for oil producers and refiners to invest, and that’s where he can be blamed,” the petroleum analyst said.

Kloza did not exactly agree.

In an email to us, he acknowledged that “there is an adversarial relationship between” Biden’s administration and oil and gas companies, and that the administration “has stumbled with its messaging.” But, Kloza said, most of the surge in gasoline prices can be attributed to just three factors: the “huge global bounce back from COVID” and the closure or reconfiguration of some oil refineries in the U.S. and Canada; the Russian invasion of Ukraine; and the 2020 formation of OPEC Plus, an alliance between the 13-member Organization of Petroleum Exporting Countries and a separate group of 10 non-OPEC members, including Russia.

In January, the EIA said that slower global oil production in 2021 was mainly due to cuts that OPEC Plus nations started making at the end of 2020. The alliance only agreed to begin making some gradual increases in production late in 2021.

“My view: President Biden and his administration are being falsely accused of pursuing policies that led to rampant price inflation,” Kloza said.

In a March survey, the Federal Reserve Bank of Dallas asked more than 100 oil and gas executives to name the primary reason they believe publicly traded oil producers are “restraining growth despite high oil prices.” Of the executives who responded, 11% cited “environmental, social and governance issues,” and 6% said “governmental regulations.” The main reason, cited by 59% of respondents, was “investor pressure to maintain capital discipline,” which prioritizes profits for investors.

Earlier this year, Rajendran told us that the relationship between companies and investors is a key factor to watch, and that the supply crunch has been “exacerbated” by investors “shifting their preference, away from growth” to “much more restrained spending.” 

“This was actually a dynamic that was already kind of taking off, you know, pre-COVID. It really kind of kicked into gear over the last couple of years,” he said.

Still, the main factors contributing to high gasoline prices are residual oil supply and demand issues, as well as Russia’s invasion of Ukraine, which continues to cause more uncertainty in the oil market. Prices in the U.S. have not skyrocketed or doubled because of Biden and Democratic policies, as Republican ads lead viewers to believe.


Editor’s note: FactCheck.org does not accept advertising. We rely on grants and individual donations from people like you. Please consider a donation. Credit card donations may be made through our “Donate” page. If you prefer to give by check, send to: FactCheck.org, Annenberg Public Policy Center, 202 S. 36th St., Philadelphia, PA 19104.

Source: FactCheck.org

Latest News