The national average price for a gallon of gasoline topped a record high of $5 last week, according to GasBuddy. In California, the state with the highest average gas price, drivers pay $6.43 per gallon, according to AAA data.
The spike in prices is due to the fundamental economic principle of supply and demand, experts told ABC News. Summer travel has sent Americans to the pumps at a time when the global market is experiencing a shortage of crude oil supply after Russia’s invasion of Ukraine pushed millions of barrels of oil off the market .
And the current crisis is exacerbating a supply shortage that has spanned a pandemic-induced production slowdown that hasn’t caught up with the new surge in demand, experts said.
Skyrocketing prices with no relief in sight have sparked sharp disagreement among public officials over what should be done in response. Republican members of Congress blamed President Joe Biden for the price increases, citing what they described as his “war on American energy”. At the same time, Biden blamed the price spike on Russia’s invasion of Ukraine, repeatedly calling it “Putin’s price hike.”
Government policy cannot significantly relieve short-term price increases, in addition to an additional release of oil from the strategic reserve or a gasoline tax holiday, each of which would likely only reduce only a fraction of the cost, experts told ABC News. But actions taken now could help foster long-term declines and insulate the market from future disruptions, they added.
“There are no overnight solutions,” said Stewart Glickman, energy analyst for CFRA Research. “In the longer term, they could make a difference.”
Here are some potential policy solutions to the gas price crisis and whether experts think they would work.
Release more oil from the Strategic Petroleum Reserve
In March, the United States announced its commitment to release about 1 million barrels per day of its Strategic Petroleum Reserve, or SPR, over the next six months – a move that was intended to alleviate some of the oil shortage. supply and sudden price increases. The decision came alongside similar announcements from some US allies.
The release of oil from the U.S. SPR offers some relief from rising gas prices, some experts told ABC News. “The price of oil would be even higher without these stocks being used,” said Pavel Molchanov, senior energy analyst at Raymond James.
If the U.S. decides to release even more oil from its reserves, that move could slow the rise in gas prices even slightly, experts said. But the Biden administration should think twice before increasing its release of reserve oil because it could deplete the stockpile by 700 million barrels, enough to release 1 million barrels a day for nearly two years, said Molchanov.
“We have to be responsible about this,” Molchanov said. “We can’t use all of these stocks at once.”
Encourage domestic oil production
On Wednesday, Biden sent a letter to major oil refining companies calling on them to take “immediate action” to increase production. The letter accused companies of taking advantage of the market environment to reap profits as Americans struggle to afford gas, and mentioned the possibility of Biden invoking the Defense Production Act, which requires companies to produce goods. deemed necessary for national security.
Glickman, the energy analyst at CFRA, said Biden’s move is unlikely to increase supply and lower gas prices, since the domestic industry is already operating at as high as 96% capacity. Refineries cannot increase capacity in a short time, Glickman added.
Biden “misses the point a little bit,” Glickman said. “These are industrial systems that move like battleships, not dinghies.”
Oil refinery capacity in the United States is 1 million barrels per day below pre-pandemic levels as several refineries have been closed or converted since the start of 2020, according to the US Energy Information Administration, or EIA. Refinery inputs for the second and third quarters of this year will average 16.7 million barrels per day, the agency said.
One approach to encouraging increased US production includes a potential tax on oil company profits. But such a move would not remove barriers to greater oil production capacity, Glickman said.
“Whether you do something like taxing the industry or not, it’s not going to change the capacity you bring back,” he said.
Some Republican members of Congress criticized Biden for drilling permit restrictions and the closure of the Keystone XL pipeline last year. But U.S. oil production last year was nearly the same as that seen in the final year of the Trump administration, 2020, and higher than the amount produced in 2017 or 2018, data from the Reuters data show. ‘EIA.
U.S. oil production rose throughout the years of the Trump administration until a steep pandemic-induced decline that began in 2020, according to EIA data.
Easing restrictions on oil drilling would lead to long-term gains in oil supply, said James Coleman, an energy policy expert at the conservative think tank American Enterprise Institute.
“If you were to reform them, it would take some time to impact oil and gas markets,” Coleman said. “On the other hand, if you’re in a hole, maybe the first step is to stop digging.”
Overall, increased U.S. oil production would help lower gas prices over the next five to 10 years and insulate the industry from future supply shocks, experts said. However, some experts have noted that the sector’s reluctance to aggressively increase production is due to fiscal discipline imposed by shareholders as well as the continued rise of renewable energy. “We know the energy transition comes at some point,” said CFRA analyst Glickman.
Gasoline Tax Exemption
A handful of states – led by Democratic and Republican governors – have suspended their gasoline taxes to provide financial relief to drivers. But moves only reduce costs by a fraction of the price. In New York State, for example, Governor Kathy Hochul this month suspended a tax of about 16 cents per gallon. With the average price of a gallon of gasoline in New York at $5, according to AAA, the tax relief equates to a 3.2% cost reduction.
The federal government could go ahead and suspend its gasoline tax, which stands at 18.4 cents per gallon. But such a move would also cut the cost of a $5 gallon of gas by less than 5%. Still, consumers would likely prefer some relief to no relief.
But suspending the gas tax would take away a key policy tool to discourage the use of gasoline for other purposes, and it would remove a funding source targeted specifically for infrastructure, Adam Hersh told ABC, senior economist at the liberal-leaning Institute for Economic Policy. New.
“The gasoline tax plays a role in discouraging the use of gasoline for other energy sources and transportation methods, while being linked to sources of funding for infrastructure investment,” said he declared.
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