Home FinanceEnergy & Environment Some Democrats are playing politics on oil and gas prices

Some Democrats are playing politics on oil and gas prices

by YAR

I have almost given up listening to any honest dialogue about oil and gasoline prices from politicians. They regularly play politics on energy issues without considering the facts.

Republicans blame Democrats for high gas prices. They insist that the rise in prices is the result of President Biden’s policies. I’ve addressed these claims before (here, for example).

Democrats, for their part, regularly blame oil companies. Last week, two prominent Democratic members of the House did just that. The first representative, Katie Porter, highlighted Shell’s profits and vowed to crack down on price gouging.

Rep. Adam Schiff then tweeted:

I don’t think Rep. Porter and Rep. Schiff are ignorant. They may not understand the complexities of oil and gas prices. They may not know that this is beyond the control of the oil and gas companies. Or that rising prices, which the oil companies do not control, will in fact lead to increased profits. But they are mixing cause and effect.

I bet if you asked them “Why are oil and gas prices going up?” they would at least understand enough not to answer “Because Big Oil is driving them up.”

But, I think they are both just playing politics. They understand that demonizing oil and gas companies shifts blame, and it is popular with the public to hate oil companies. The result is that the public thinks of oil companies with the same kind of disdain that it views tobacco companies, even though these companies provide a critical service to most people.

The problem with this kind of thinking is that it leads to bad energy policies. Instead of passing policies that truly address supply and demand, we end up passing punitive policies that are counterproductive.

Regarding Rep. Schiff’s tweet, there are multiple reasons why gas prices would not respond quickly to an underlying change in the price of oil. One is simply that oil doesn’t instantly convert to gasoline and arrive at the store for sale.

But there’s something else going on here, in case you’re interested in digging a little deeper. In February, the US was still importing half a million barrels a day of diesel and gasoline from Russia. That has stopped and caused some market disruption.

US refiners are struggling to keep up with demand. Distillate levels are very low and jet fuel demand is back with a vengeance. Therefore, refiners are producing as much distillate and jet fuel as they can. That does change the product spectrum of gasoline production a bit, though, at a time when we’re already missing out on those Russian imports.

Most of the time, oil and gasoline prices are closely correlated, with a slight lag. Sometimes, however, there can be problems at the refining stage that can cause the oil and gasoline to move in opposite directions.

Imagine a situation where US refining capacity is constrained, but gasoline demand is high. In that case, there may be less demand for oil, because it simply cannot be pushed through the refineries. So you could see crude oil stocks start to rise and prices soften, while at the same time gasoline prices stay high. This is very similar to the situation we have now.

Most of our imports from Russia were finished products. Now that they have been banned, the market is struggling to adjust to the loss of these products. It is true that this is a slightly more complex response than “The oil companies are scamming us”, but it is a true reflection of what is really happening.

Source link

Related Articles

Leave a Comment

The Float