No, Corporate Greed Is Not to Blame for High Gas Prices

E nergy prices are surging across the country. Nationwide, the average cost of a gallon of gas reached a record $5 last week, according to AAA. This May, Americans spent $100 per month more on gas than they did last May.

Progressives in Congress have blamed these budget-busting energy prices on, you guessed it, corporate greed, with some members going so far as to say: “Big Oil is price gouging families because they can.” In the White House, President Biden has also blamed the Big Oil bogeyman, saying that Exxon is making more money than God, and that “refinery profit margins well above normal being passed directly onto American families are not acceptable.”

Never mind the fact that the Federal Trade Commission has investigated price gouging and illegal conduct within the energy industry and come up empty; the Democrats’ statements reflect a fundamental misreading of the nature of energy markets. The high prices we’re seeing at the pump are a result not of corporate greed, but of changes in global supply and demand.

Oil is a globally traded commodity, which means that prices in the United States are affected by supply and demand across the rest of the world. During the Covid-19 pandemic, oil prices collapsed. Many companies followed these market signals and cut back production, affecting spare capacity (in this case the volume of production that can be brought on within 30 days and sustained for at least 90). When economies began to open up as Covid restrictions eased, global demand rapidly outpaced supply, leading to increased energy prices.

As production decreased, so too did the need to refine oil. In 2021 global refinery capacity shrunk by 730,000 barrels per day, the first decline in 30 years. In April 2022, an average of only 78 million barrels of oil were refined per day, well below the pre-pandemic average of 82 million barrels per day.

As of May 2022, spare capacity and refining capability are highly constrained, according to the International Energy Agency, which reports that “global oil inventories declined by 45 [million barrels] in March and are now 1.2 billion barrels lower since June 2020.”

Russia’s invasion of Ukraine also continues to bring disorder to oil markets. And adding to the pressure in the U.S., we are entering “driving season,” when Americans take to the road for their summer vacations. Put all this together, and there seems little reason to expect any respite at the gas pump any time soon.

Given the international nature of energy markets, and the likelihood of continuing Ukraine-related market disruptions, there is very little that President Biden can do to reduce prices in the short term. That’s not to say, however, that he does not share in the culpability for current high prices and poor regulatory decisions that restrict supplies and depress investment in new production.

Even before he was elected, Biden offered a “guarantee” that he would “end fossil fuels.” Since assuming office, he has taken a hard stance against domestic fossil-fuel production. While he has sometimes encouraged American oil companies to produce more oil, that encouragement has, to say the least, been undermined by continued attacks on a sector he seems all too willing to scapegoat. Recently proposed SEC rules on climate-change-related disclosures to investors are just one example of the administration’s attitude toward oil companies, and whether or not they are approved, they are hardly likely to encourage investment in domestic-energy production.

The same could be said of the signal sent by the president in his first day in office, when he revoked the Keystone XL’s pipeline permit and instituted a (since-halted) moratorium on new oil and natural-gas production on federal lands. The fact that American oil production tends, in many cases, to be cleaner than overseas production — and could thus play a significant role in decreasing global emissions — is apparently lost on the administration.

Congress and the Biden administration should reverse course on their harmful energy policies by introducing common-sense reforms to reduce prices in the short and long terms. Temporarily halting summer-blend requirements, for example, could reduce the cost of gas by as much as 15 cents per gallon. Reducing barriers to and approving key infrastructure projects, such as Keystone XL, would also alleviate price concerns by offering the promise of bringing more supply to market, something that would, if only at the margin, lower prices today, and would have the potential to lower them more in the future.

As Americans continue to feel the impacts of high gas prices, lawmakers must look past politics and offer solutions that address the root of the problem. While gas prices are largely a result of global markets, policy decisions affect future supplies and investments. The ill-considered energy agenda being pushed forward by the White House has hurt American companies and consumers alike.