Why Are Gasoline Prices Setting Records?

?On the surface, the simple answer to rising gasoline prices is an imbalance between supply and demand. According to the U.S Energy Information Administration, finished motor gasoline supplies averaged 10 million barrels per day (Mbbl/d) before COVID. Supply dipped almost in half during the height of the pandemic and has rebounded to around 9 (Mbbl/d). Supply is currently down approximately 10%. According to the U.S. Federal Highway Administration, Americans are driving about the same number of miles now as pre-COVID. The result is inflation. Not so fast!

Do you think that increasing gasoline supplies by 10% will reduce gasoline back to 3 dollars? Increasing supply will certainly help, but it is not the only answer.

Reasons for high gasoline prices include: Price of crude oil, Labor and material shortages, Supply chain disruption recovery after COVID, Investors unwilling to outlay capital needed to produce more gasoline without some form of risk mitigation, SEC restriction on capital, War in Ukraine and associated oil embargoes, Restrictions and litigation on leasing and drilling permits for onshore federal lands and offshore, Restrictions and litigation on pipelines and distribution.

It will take the Government and the Petroleum Industry jointing working together to solve this problem. Here are some facts that may help identify where to focus.

?Gasoline Price Components: In December 2021, around 53% of the total price of regular gasoline was the price of crude oil. Another 21% was distribution and marketing, 15% was federal and state taxes, and 12% was refining costs. The price of a barrel of crude oil is set based on the market expectation for the future in terms of production, regulation, capital availability, political stability, and distribution.

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More than two-thirds of U.S. energy consumption is petroleum and natural gas. Drilling on public lands represents 7 percent of domestically produced oil and 8 percent of domestically produced natural gas. Offshore drilling accounts for 16 percent of oil production and 3 percent of natural gas production in the U.S.

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The US is the top producer of crude oil, followed by Russia, Saudi Arabia, Canada, and Iraq. Buying and selling to our friends that share common goals needs to be a priority.

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Drilling is highly cyclical and has high financial risk/reward. Investors are skeptical to invest without some form long term agreements and risk mitigation.

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Ninety percent of transportation energy consumption comes from petroleum. Shifting transportation to electric vehicles will improve carbon emissions but not eliminate—nineteen percent of electrical power generation comes from renewable sources.

The answer to reducing gasoline prices is reaching a consensus on clear, realistic production targets for all energy sources, identifying obstacles to meeting those targets, and Government and Industry working together to address the barriers in the framework of a competitive capitalistic system.

What are your thoughts?