On the menu today: You don’t hear as much now about gas prices as you did during the record highs in June, but that doesn’t mean that prices at the pump are anything close to normal. That long stretch of declines from the June high ended in late September, and gas prices are actually up about eleven cents a gallon in the past week or so. The Strategic Petroleum Reserve is at its lowest point in nearly four decades; California refineries are shutting down; Gavin Newsom says that there’s no explanation for price hikes; and OPEC, the Russians, and the Saudis are laughing all the way to the bank. Also remember that in Joe Biden’s mind, his policies on energy are a success story.
Gas Prices Return as an Issue
Late last week, I flew into Los Angeles for the National Review Institute’s annual Buckley Prize Dinner, and in addition to spying Nakatomi Plaza in the distance, I saw a gas station selling regular gasoline at — still! — more than seven dollars a gallon. Perhaps this was one of those high-priced stations that aims for travelers who are about to return their rental cars; the other gas stations we passed were close to seven dollars a gallon but not quite over it. This morning, according to the American Automobile Association, the average price for a gallon of regular gasoline in Los Angeles is $6.46.
Yes, Los Angeles gas is always more expensive than the state average of $6.38 per gallon, and California gas is always more expensive than the national average of $3.79. (One year ago, the national average was $3.19; last November, at an event in Baltimore, President Biden exclaimed, “Did you ever think you’d be paying this much for a gallon of gas? In some parts of California, they’re paying $4.50 a gallon!”)
But none of those prices are cheap by historical standards. Late last week, the AAA warned that:
According to new data from the Energy Information Administration (EIA), gas demand increased nationally from 8.32 million barrels per day to 8.83 million barrels per day last week, and total domestic gasoline stocks decreased by 2.4 million [barrels] to 212.2 million barrels. Higher gasoline demand amid tight supply and fluctuating oil prices have increased the national average. If demand remains robust as supply tightens, drivers should brace for rising pump prices through the weekend.
The average price for a gallon of regular gas remains above $4.10 in Illinois, Michigan, Washington, Idaho, Oregon, Nevada, California, Arizona, Alaska, and Hawaii.
As I noted in late August, a lot of Democrats and Democrat-aligned voices treated declining gas prices as a sign that the issue had been resolved, but a decline from the all-time high is not the same as a price that will get customers to stop thinking about how high gas prices are. Once again, President Biden has taken a victory lap far too early.
And while gas prices in California have always been higher than the rest of the country, they’re now pulling away from the national average. One reason is that there are four major refineries offline in California, with three having scheduled maintenance and a fourth having “power problems.” And because California has the strictest and most complicated gasoline formula for environmental purposes, the state can’t easily import gasoline from other states. When the state combines low supply and high demand, once again, prices skyrocket.
This morning, the editors of the Wall Street Journal note that California’s woes are largely self-inflicted:
California gas prices have long been higher than the national average owing to hefty fuel taxes and climate regulations, but the difference now is the largest in at least two decades. Taxes add about 66 cents to the price of a gallon, about twice as much on average as other states. California’s cap-and-trade program and low-carbon fuel standard add roughly another 46 cents a gallon.
These climate regulations are causing refineries to shut down or convert to producing biofuels that are more profitable because of rich government subsidies. California lost 12% of refining capacity between 2017 and 2021 and is set to lose another 8% by the end of next year. Yet refineries outside of the state can’t produce its supposedly greener fuel blend.
If you think high gas prices in California don’t affect you because you don’t live there, think again. Remember, more than 40 percent of the total containerized cargo entering the U.S. arrives through California ports, and nearly 30 percent of the nation’s exports flow through those ports. The current cost of diesel in California is $6.32 per gallon, two dollars higher than this time last year. The state began a one-year suspension of taxes on diesel fuel on Saturday, but Governor Gavin Newsom is proposing a new “windfall tax” on oil companies. He says the oil companies have “no explanation” for the high gas prices; I guess he thinks crude oil just magically turns into gasoline that can run a car’s engine.
“We’re not going to stand by while greedy oil companies fleece Californians,” Newsom said, ignoring the fact that his state has the second-highest gas tax in the country.
This means that everything you buy that comes through one of California’s ports is more expensive because of the higher costs to the trucks bringing those goods to the rest of the country. California’s refineries are also switching over to renewable diesel — which reduces their output:
In terms of production issues, many refineries have pivoted to creating renewable diesel, which [GasBuddy spokesperson Patrick] De Haan says produces less product.
“Generally, renewable diesel yields about a third of what a traditional unit would produce,” said De Haan.
When it comes to fighting high gas prices, the Biden administration is a one-trick pony: It just keeps releasing more from the Strategic Petroleum Reserve, which is supposed to be saved for national-security emergencies, not political emergencies.
Last week in National Review, Wyoming senator John Barrasso laid out how the administration was effectively cleaning out the national savings account instead of getting a job and earning more money:
In March of this year, Biden issued two emergency orders authorizing the release of a combined 190 million barrels of oil through October, about 155 million barrels of which have been released to date, with the rest expected to be released before December.
Add 70 million barrels of exchanges and statutorily required sales, and SPR oil stocks will plunge from 620 million barrels at the start of this fiscal year to just 360 million. That will leave the inventory at its lowest level since 1983, adequate for just about 22 days of supply and down from a high of more than 50 days of supply. Despite this, energy secretary Jennifer Granholm has not ruled out further SPR sales.
Alexander Zemek lays out how unprecedented these moves are: “Less than two years into his presidency, President Biden has released more oil from the nation’s Strategic Petroleum Reserve than all previous presidents combined. To date, Mr. Biden has allowed over 200 million barrels to be withdrawn — more than 30 percent of the total reserve he inherited, intended to be used in case of urgent need.”
And as you’ve likely noticed when you fill up your tank, the effect of those releases is modest in the context of the overall price hike since last year:
In July, four months after opening the SPR spigots and tens of millions of barrels sold into the economy later, the Treasury Department estimated that the decision, “lowered the price of gasoline by 17 cents to 42 cents per gallon, with an alternate approach suggesting a point estimate of 38 cents per gallon.”
That estimate, given the average retail price for a gallon of gas was about $4.49 in the second quarter of 2022, according to Statista, indicates the SPR release only slightly lessened the price consumers paid.
“The impact of the SPR on gasoline prices tends to be modest,” Lutz Kilian, senior economic policy advisor at the Federal Reserve Bank of Dallas, told McClatchy News. “The SPR is not well suited for managing global oil price risks. That would take a much bigger reserve. [It is] at its best in dealing with short-run supply disruptions such those caused by hurricanes or shipping accidents.”
Finally, you may recall Biden traveling to Saudi Arabia in July and fist-bumping Crown Prince Mohammed bin Salman — a major humiliation considering how the president had pledged to make Saudi Arabia “a pariah” back when he was running for president. He went back on this pledge in hopes of getting the Saudis to produce more oil. Now that it’s October, however, we can conclude that the Saudis took Biden to the cleaners:
The U.S. has asked OPEC+ to pump more oil to help bring down the price of gasoline. OPEC+ accelerated some production cuts over the summer ahead of President Biden’s visit to Saudi Arabia and made a small increase in August but has since worked to reverse those moves.
In the past months, the U.S. has responded to rising oil prices by tapping into its strategic stockpiles. Christyan Malek, global head of energy strategy at JP Morgan, said Saudi Arabia’s support for a cut to production could be a response to lower gas prices for U.S. consumers, which he partly tied to a U.S. decision to release stockpiled oil. . . .
The Saudis have pursued a more aggressive oil policy this year as oil prices rose during the Ukraine war. Higher oil prices have helped Saudi Arabia become one of the world’s fastest-growing economies this year and infused with cash an ambitious economic overhaul launched by the kingdom’s de facto ruler Crown Prince Mohammed bin Salman.
Mohammed bin Salman got his fist-bump, Biden got a bunch of vague promises that were eventually broken, Gavin Newsom got to denounce oil companies as “greed,” and you got gas at $3.79 per gallon in October. Everybody won except you.
ADDENDUM: Right now, FiveThirtyEight puts Indiana’s incumbent GOP senator Todd Young’s chances of reelection this November at 97 out of 100. But this morning, a new poll puts Young barely ahead of his Democratic challenger, Tom McDermott, 39 percent to 37 percent. File this one away, because either this race is going to be closer than anyone expected, or this is another poll with an awful sense of who’s going to show up in November. Back in 2016, Young beat Evan Bayh, 52 percent to 42 percent.