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It’s Not Complicated… A Crude Reason for High Gas Prices

The US is currently enjoying the highest gas prices in its history.  Many reasons for this condition have been given.  The Brandon administration’s termination of the Keystone pipeline, its denial of drilling permits on Federal lands, corporate greed of the oil companies, and even the current war in Ukraine have all been cited as reasons.  What, though, is the real cause?

The supply of raw material

Gasoline production begins with crude oil.  This is oil that has been extracted from the earth before any processing has taken place.  Obviously, if the price of crude oil is high, then the price of products made from that crude oil will be high.  The administration has tried to attribute high prices to reduced supplies of crude oil, and it is true that crude prices have risen recently.  Our fearless leader has even been negotiating with Saudi Arabia to have them increase their production, as well as with Venezuela which we can hardly consider a friend.

Actually, though, domestic production is about where it was before prices began to rise.  Without drilling more wells, we can provide for our own crude needs for the reasonable future without having to resort to foreign oil.  We will need new drilling at some point, but the need is not immediate.  Why would the administration claim that we needed foreign oil if domestic production is sufficient?

Biden has even gone so far as to release oil from the strategic petroleum reserve – a reserve set aside to meet our needs should other sources be cut off.  Aside from the effect on national security, the amounts released cover only a tiny fraction of our needs and are thus more symbolic rather than a real help.  In fact, since the release, the administration has been quietly replenishing the reserve at the current elevated prices.

In reality, while the price of crude oil, the raw material of gasoline, diesel fuel, heating oil, and other petroleum products has risen, it has not risen enough to account for the increased fuel prices.  Even allowing for a small global increase in crude prices due to disruption of oil supplies from Russia during the current Ukraine situation, the increase in the cost of crude doesn’t explain gas prices.

Refining the story

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Realizing that the increased cost of crude cannot explain the pain at the pump, Biden has taken a new tack to blame oil company greed.  Pointing out that oil refineries are making record profits, Biden is now pointing at refineries as the source of the problem.  He claims they are taking advantage of the current situation and restricting production to ensure high prices to feed their greed.  Is this what is really happening, though?

During the government-imposed lockdowns of the last two years, demand for gasoline and other petroleum products fell off as travel, both personal and commercial, was restricted.  Due to this reduction in demand, as well as to a shortage of staff, many refineries were closed.  When the lockdowns were lifted, demand for gasoline surged, but the refinery capacity no longer existed.

Presently, the remaining refineries are operating very close to capacity.  There is little margin available to increase capacity while pushing refining limits can have serious safety consequences.  Some of the closed facilities could be brought back on line, but that takes time and is not simply like turning on a light switch.  Some of the refineries have been converted to other uses such as biofuel production and would be difficult to convert back.

It appears that the real bottleneck is in refinery capacity, and not in the supply of raw material.  But if those greedy oil companies are making such high profits in refining, why don’t they turn some of those refineries back on and make even more profits?  To answer that will require a bit of discussion.

Supply, demand, and economics 101

Most of us have heard of the law of supply and demand, where prices will adjust so that the price people are willing to pay (demand) will rise or fall to reflect the available supply.  That is the situation we have today.  Because of the Covid cutbacks in refinery capacity, we have reduced supply.  As the economy recovers from the artificially induced lockdown recession, demand has increased faster than supply can be ramped up.  Consequently, prices have risen, reducing demand, until supply and demand are again in balance.

Yes, oil companies could sell gas at lower prices, but for most people, that would mean there would be no gas available. Unless demand were reduced, the available supply would be quickly acquired at lower prices, leaving a shortage for other needs.  The higher prices prompt reduced consumption, leaving some for other buyers.  Unfortunately, the high prices cause many other problems even though they ensure a supply of gas for most essential uses.

The blame game

Joe “The Buck Stops There” Biden, has taken the bold step of blaming corporate greed of the oil companies for high gas prices and has threatened them with government action unless they increase refinery output immediately.  As mentioned earlier, though, there is little or no excess capacity in current refineries, and trying to push beyond normal capacity limits greatly increases the risk of large-scale accidents.  Having a major refinery catch fire would not help refinery capacity.

So far, oil company executives have been slow to respond to Biden’s demands.   In large measure, probably because there isn’t much response they can make.  What are they going to say?  I can’t see them sending a response like:

“You caused the problem, idiot, now you fix it! You promised to eliminate fossil fuels, and your actions are working to that end with no consideration given to the harm your policies are doing to the nation, the economy, and to the people of this country.  Quit trying to appease your delusional far-left base and do something right for a change.  Let’s Go Brandon”.

Much as many executives might wish to send such a response, most of them are much more restrained than I am.  I, on the other hand, do not have their constraints.  LGB.

Promises kept

During his campaign, the current pretender to the office of President promised to completely eliminate fossil fuel use in the US.  Acting on the thoroughly debunked theory that CO2 from fossil fuel use was causing the climate to change in catastrophic ways, this pretender to the office has issued several Executive Orders that have taken large steps toward fulfilling his promise.  Most of his actions are probably unconstitutional, but that has not been a deterrent so far.  After all, the Constitution is obsolete and should therefore be ignored whenever it gets in the way of “getting things done”.  And yes, the anthropogenic climate catastrophe theory has been debunked, but that is a topic for a future article.

The real reason for high gas prices

So now we see where the real problem lies.  Our current administration has established policies that actively discourage increases in oil production, have served to reduce the refining capacity for the oil available, and are taking actions globally to drive up crude prices by bidding for global supplies.  All of this rests squarely on the actions of an illegitimate administration.  It is not crude supplies, corporate greed, a foreign war, or any of the other factors the administration has tried to blame.

It is all your fault, Joe.  Own it.

By David Robb

David Robb is a regular contributor to The Blue State Conservative and a practicing scientist who has been working in industry for over 50 years. One of his specialties is asking awkward questions. A large part of his work over the years has involved making complex scientific issues clear and understandable to non-specialists. Sometimes he even succeeds.

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The views and opinions expressed in this article are solely those of the author and do not necessarily represent those of The Blue State Conservative. The BSC is not responsible for, and does not verify the accuracy of, any information presented.

Notice: This article may contain commentary that reflects the author’s opinion.

Photo by Callum Shaw on Unsplash