Biden Administration Continues To Show Lack of Understanding of Energy Markets
Transportation Secretary Pete Buttigieg became the latest Biden administration official to display a stunning lack of awareness around how the oil and natural gas markets work during an interview Sunday on ABC News “This Week.”
When program host George Stephanopoulos asked Buttigieg about the national average price for a gallon of gasoline quickly approaching $5 dollars despite the administration twice ordering a release of oil from the Strategic Petroleum Reserve (SPR), Buttigieg stated:
“Well, look, I don’t think it’s correct to say it hasn’t made any difference at all. This is an action that helped to stabilize global oil prices.”
But that response simply is not supported by the facts.
The administration announced the first SPR release in late November 2021 when the price of Brent crude was $83 per barrel, WTI was $78 per barrel, and the average price of gasoline in the United States was $3.49 per gallon.
By the time the administration announced a second, “historic” SPR release, Brent and WTI had spiked as high as $127 and $116 per barrel, respectively, and gasoline had risen to $4.33 per gallon.
Today, more than two months after that second SPR release, both Brent and WTI prices have bounced around erratically and are currently at similarly high levels despite the president’s decision for a third, historic release of 90 million barrels. Most critically for consumers, gasoline prices have kept rising and recently hit a new record high of $4.72 per gallon.
In November, ahead of the first SPR release, Energy In Depth’s Executive Vice President, the Independent Petroleum Association of America’s Jeff Eshelman, explained why the reserve should be used for emergencies, not balancing markets and before the second SPR release, correctly forecasted that another reserve release “won’t lower prices at the pump this time either.”
Buttigieg then falsely claimed that oil companies are controlling gasoline prices:
“But we also know that the price of gasoline is not set by a dial in the Oval Office. And when an oil company is deciding, hour by hour, how much to charge you for a gallon of gas, they’re not calling the administration to ask what they should do; they’re doing it based on their goal of maximizing their profits.” (emphasis added)
This comment shows a complete failure to understand the American energy sector. U.S. oil companies do not control the price of oil, which, like any other commodity, is set by the global market and OPEC+, as the Energy Information Administration explains:
“Crude oil prices are determined by global supply and demand. Economic growth is one of the biggest factors affecting petroleum product—and therefore crude oil—demand. … The world’s transportation sector is almost totally dependent on petroleum products such as gasoline and diesel fuel.
“… The Organization of the Petroleum Exporting Countries (OPEC) can have a significant influence on oil prices by setting production targets for its members. OPEC includes countries with some of the world’s largest oil reserves. At the beginning of 2020, OPEC members controlled about 71 percent of total world proved crude oil reserves (plus lease condensate), and they accounted for 36 percent of total world crude oil production in 2020.”
More specifically, U.S. oil companies are not controlling the price of gasoline. In fact, the vast majority of gasoline stations aren’t even owned by oil companies, but by independent retailers who simply license out the name of the oil company. The American Petroleum Institutes explains:
“Refiners own less than 5 percent of the 145,000 retail stations. When a station bears a particular refiner’s brand, it does not mean that the refiner owns or operates the station. The vast majority of branded stations are owned and operated by independent retailers licensed to represent that brand. According to the National Association of Convenience Stores (NACS), more than 60 percent of the retail stations in the US are owned by an individual or family that owns a single store.”
Even those gasoline stations are selling gasoline based on market factors, as EIA states:
“Gasoline prices tend to increase when the available supply of gasoline decreases relative to real or expected gasoline demand or consumption. Gasoline prices can change rapidly if something disrupts crude oil supplies, refinery operations, or gasoline pipeline deliveries. Even when crude oil prices are stable, gasoline prices fluctuate because of seasonal changes in demand and in gasoline specifications.”
So, for Buttigieg to claim that oil companies are “deciding, hour by hour, how much to charge you for a gallon of gas,” is simply false and shows a complete ignorance of long-established energy market principles.
U.S. oil companies don’t control the price of oil and gasoline anymore today when they are at record highs than they did when oil crashed to -$37 per barrel in April 2020 when the COVID-19 pandemic corrupted consumer demand and gasoline fell to only $1.87 per gallon.
As Garret Golding of the Dallas Federal Reserve Bank (and countless other experts) recently explained:
“It’s not price gouging or a grand plot by the industry. This is how the business functions.”