Gasoline and diesel prices were trending down since the fall, but in recent weeks, prices are on the way up again. Incidentally, President Biden’s releases from the Strategic Petroleum Reserve have ceased. Average gasoline prices are up 41 cents since the low in December. Prices look to continue to increase on strong demand, the EU’s upcoming embargo on distilled products from Russia, and U.S. refineries close to capacity. President Biden could work to lower prices, but high gasoline and diesel prices fit his agenda to shift people to electric vehicles.
After months of price declines, the world is now set up for gasoline and diesel price increases. Here are some of the key factors:
- Strong global demand. With China reopening its economy after COVID lockdowns, oil demand will remain strong unless there is a global recession.
- Constrained supply from the EU’s Russian sanctions. On February 5, the E.U.’s ban on importing refined products from Russia will go into effect. The challenge for Europe is that Russian diesel still makes up 27 percent of Europe’s diesel consumption. These sanctions will bid up diesel prices globally and put upward pressure on U.S. diesel prices.
- Constrained refined product supply in the U.S. Some U.S. refineries were recently hit by winter storms and production has been lower as a result. Also, with high refining margins last year, refineries ran as much as possible and this year, refineries are going to need more downtime for maintenance. Lastly, inventories for refined products are currently low.
One countervailing factor is that China’s diesel exports have increased in recent months. Unlike the United States, China has been expanding its refining capacity in recent years and is now exporting near-record amounts of diesel.
Even with Chinese diesel export increasing, market forces and international sanctions look likely to push gasoline and diesel prices higher.
What is the Biden administration doing?
Despite the fact that energy prices are one of the important issues for the American people, the Biden administration refused to take steps to sustainably lower the price at the pump. The administration claims that President Biden “has been singularly focused” on lowering energy prices, but there is little reason to believe that is true judging from his actions.
The only action President Biden has taken to lower prices at the pump was his massive release of oil from the Strategic Petroleum Reserve (SPR) before the mid-term elections. Not long after the election, he ceased releases from the SPR, after supplies were reduced to their lowest levels since 1983.
On the other side of the ledger, the administration and allies on Capitol Hill have taken over 125 actions that make it more difficult to increase the domestic production of oil and gas and have implemented new fees and taxes on all energy which add to costs for consumers.
For example, instead of holding oil and gas lease sales on government lands and waters, he has snuffed them out, holding the fewest since World War II. His Interior Secretary, Deb Haaland, has repealed an existing Secretarial Order setting a goal of “American Energy Independence,” another on “Strengthening the Department of the Interior’s Energy Portfolio,” and yet another promoting an “America-First Offshore Energy Strategy.” In fact, Congress had to mandate certain oil and gas lease sales so that the administration would actually hold the sales.
The world is set up to return to higher gasoline and diesel prices, which, without government interference, should be a signal for the market to increase production. At a time when the administration should be focusing on freeing up domestic energy producers to respond to higher prices by producing more, the administration is instead working to limit domestic production.