Oil prices and bad politics

Gasoline prices approaching $ 5 a gallon are displayed outside a Circle K gas station in San Rafael, Calif., On Octobe...


Gasoline prices approaching $ 5 a gallon are displayed outside a Circle K gas station in San Rafael, Calif., On October 5.


Photo:

Justin Sullivan / Getty Images

Oil prices are rising and the White House is worried about rising gasoline prices for consumers. Hopefully the Biden administration doesn’t compound the damage caused by its assault on fossil fuels by banning US oil exports.

National average gasoline prices have increased 40 cents per gallon in the past six months and $ 1 since December. The White House blames OPEC for not increasing supply further as demand has rebounded amid the pandemic recovery, but that’s too easy a scapegoat.

Crude oil prices have doubled since November to $ 83 a barrel, and petro-states want to keep prices higher to fund their governments. But U.S. producers have also been slower to restart production as the administration threatens the oil and gas industry with an array of taxes and regulations. Producers aren’t going to drill more wells today, even at today’s higher prices, if they don’t think they’ll generate future profits.

The Federal Reserve is also to blame because it drove central banks to trigger inflation that pushed up asset prices, especially almost all commodities. Price increases this widespread signal more than supply shortages. Oil is traded in dollars and its price is rising against a background of general inflation. Oil prices surged in the mid-2000s, and the classic case was the energy crisis that followed the abandonment of Bretton Woods by the United States and the dollar’s fixed peg to gold.

The administration is looking for some political leverage in a storm, but those it has mentioned would either do little or be counterproductive. News reports indicate that Energy Secretary Jennifer Granholm plans to exploit the strategic oil reserve and has not ruled out banning US exports. The Energy Department later retracted his comments, but anything is possible as President Biden’s poll numbers drop.

Congress created the Strategic Petroleum Reserve in 1975 after the oil price shock to mitigate supply disruptions in the event of an emergency. A 2015 budget deal required periodic small installments over the next decade to generate revenue.

But the reserve exists for real emergencies, such as a hurricane that shuts down production in the Gulf Coast states for months. Oil prices have often exceeded $ 80 a barrel over the past decade and are not an emergency. Exploitation of reserves could temporarily suppress crude prices, but would also discourage US production.

The same goes for the ban on oil exports. Congress lifted the ban on crude oil exports in 1975 as part of a bipartisan budget deal that also extended tax subsidies to renewable energy. Oil exports have since increased six-fold to around three million barrels per day.

A Government Accountability Office report last fall found that lifting the ban increased production incentives by letting domestic drillers charge higher prices. But gasoline prices have not risen because domestic refiners compete globally. Many US refiners process heavier crudes that are historically cheaper and are expected to invest in upgrades to process light oil from the Bakken or Permian shale.

The export ban might lower domestic oil prices somewhat, but would not reduce the amount Americans pay at the pump. Refiners would simply make more profits. Some of the crude that the United States currently exports would cease to be produced while some would be transported domestically to refiners at an increased cost.

Pipeline capacity in some areas of the United States is limited, so domestically produced crude must be transported by rail or tanker. But under the Jones Act, only US-built, crewed, flagged, and owned tankers can transport product between US ports. These ships are rare and in high demand and charge more.

The GAO report noted that the repeal of the export ban had resulted in “a decrease in demand for US tankers to transport domestic oil.” Reimposing the ban could therefore increase demand for these vessels and create headaches for other companies attempting to transport cargo.

But a ban would advance the administration’s goal of discouraging oil and gas development. The presidents of both sides for more than four decades have decided to allow increased exports of oil and gas products.

Joe biden

would be the first president since the 1970s to move in the opposite direction. Ironically, China is the biggest importer of American crude.

The way to reduce gas prices is to increase the supply of oil. This means not sending political signals that the administration’s goal is to bankrupt the industry.

Bad policy choices are contributing to the energy supply crisis. Photo: Associated press

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Published in the print edition of October 12, 2021.

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