SHOPSMART AUTOS – AUGUST 19, 2021 – Who Is To Blame For Rising Gasoline Prices? (PT. 2)
As the end of the pandemic nears, oil demand is bouncing back. Supply doesn’t respond as quickly, and therefore that puts pressure on prices. If you think Biden is responsible for hastening the end of the pandemic, then you can place some blame for the rise in oil prices on him. But that’s because the economy is beginning to recover, which is a good thing. Second, unlike a year ago, OPEC and Russia recently decided to cooperate by extending most of the current output cuts. Despite some recovery in demand, Saudi Arabia kept in place a 1 million BPD cut. That decision sent oil prices sharply higher, and will likely ensure additional gains in gasoline prices.Factor 2: Loss of Refining Capacity
Beyond oil prices, what other factors can impact gasoline prices? One of the most significant is any event that limits refinery capacity. If the crude oil can’t get refined, then gasoline supplies will start to run low. That, in turn, will cause gasoline prices to rise. This often happens when a hurricane is churning through the Gulf of Mexico, but it also happened last month when the winter storm swept through Texas. During the first two weeks of February, refinery utilization in the U.S. was at 83%. Then the winter storm negatively impacted about a dozen refineries in Texas. By the last week of February, refinery utilization had plunged to 56%. Once again, it’s hard to pin that on Biden. There are only a couple of mechanisms by which a President could have a short-term impact on gasoline prices. If they signed legislation changing the gasoline tax, which currently accounts for about 21% of the cost of gasoline, then that would quickly impact gasoline prices. Or, if a President announced a major release of oil from the Strategic Petroleum Reserve, that could cause oil prices to temporarily dip and might impact gasoline prices short-term. Longer term, there are certainly things Biden can do to impact gasoline prices. Some of the moves he is making now may eventually impact prices. Cancellation of the Keystone XL Pipeline, for example, could eventually impact gasoline prices. But those are long-term impacts. Other than the two mechanisms I mentioned above (or, I suppose he could also escalate military action in the Middle East), a President just doesn’t have a mechanism for sharply moving gasoline prices.
Factor 3: Transition to Summer Gasoline
Where are prices headed from here? Undoubtedly higher. One final fact that impacts gasoline prices is whether the U.S. is in winter or summer gasoline season. Winter gasoline blends are cheaper to produce, and demand is lower. By summer, gasoline blends cost more to produce and demand is higher. Hence, the price of gasoline typically rises between January and May. Last year was a notable exception caused by the pandemic, but higher gasoline prices headed into summer is the norm.
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