Gas Prices Aren't Biden's Fault

I’m sure that if you haven’t heard about gas prices rising, you’ve definitely noticed (unless you prefer to walk, or use some other non-oil using mode of transportation…like a unicycle).

Surely you’ve seen the memes.

Some, particularly those inclined to lean rightward when the political winds blow, seem to think that there’s only one person to blame: President Joe Biden. Like Kevin McCarthy, who wrote in a recent op-ed:

“Under President Biden’s leadership, energy imports from Russia increased by 34%. This administration has not only stalled oil and natural gas exports to our allies, but has blocked further energy transportation infrastructure in the U.S., like the Keystone XL Pipeline, while supporting projects abroad, like Russia’s Nord Stream 2 pipeline. With investments in our own pipeline infrastructure, American refineries could have easy access to Canadian crude oil instead of Russian oil.

Only after Vladimir Putin invaded Ukraine did President Biden admit this vulnerability.

The only “plan” President Biden has for the current energy crisis is to release oil from the Strategic Petroleum Reserve and ask other countries to produce more oil.

These shortsighted ideas put America last, and the solution is obvious: rapidly increase American energy production, thus replacing Russian oil and gas with energy made in the U.S.A.”

Others have pointed out that gas prices are being hiked up because of just plain old capitalism, that oil and gas companies, along with individual convenience stores, are just hiking up prices to make a quick buck.

I would add this, though: investors are fickle and scare easily. As a result, there’s a lot of volatility in the market, and that can lead to huge swings in prices. Do you think the gas/oil company is going to just eat the losses? No. They’re going to shift it on to the consumer, as they always have done. But more on that later.

I don’t share the sentiment that President Biden is to be blamed, generally at all. Even as a show of good faith towards compromising on a middle ground, I’d say barely a fraction.

Here’s what Biden could do, shouldn’t do, and is likely already doing.

Restart Keystone XL Pipeline

This is a pipedream of epic proportions that benefits producers and investors. That’s it. Nor would that fix the issues in the present context. Why? Because after Biden’s Executive Order that revoked the permits, TransCanada abandoned the project. It would take, at minimum, three years to complete the project if restarted now, and that’s without opposition. And there should be opposition.

A 3–5 year project to increase the number of barrels by maybe 510,000 per day does not fix today’s problem. So suggesting that this is a blunder on Biden’s part is not accurate, or fair. It’s political positioning, and that’s it.

Biden should not restart the Keystone XL pipeline.

Suspend National Gas Taxes

Now this is certainly an idea, since it would reduce gas prices by at least $0.184 per gallon. There’s not a lot of political capital to get this done, especially because Biden’s new infrastructure plan relies heavily on these taxes. Still, it would certainly help, even in the short term. The other thing we have to worry about is whether or not oil/gas companies replace that with price hikes in an effort to make more money.

So sure, Biden could do that. And I think Biden should do this. His infrastructure bill is important, yes, but so too is protecting Americans against the rising tide of oil, in context of both market volatility and inflation. Suspension does not have to be permanent, but would go a long way.

But this isn’t just a Biden thing. In fact, your local and state gas taxes are on average higher. Not only has the national gas tax not changed since 1993, but it isn’t indexed to inflation.

Only two states have state gas taxes that are lower than the national level, and that’s Alaska and Missouri. The rest are higher, with the highest being California with $0.6698 per gallon (it’s $0.98 for diesel, which we’re not even going to get into here. Not only that, but in some states (like California), there’s also sales taxes applied (2.25% for regular gas, and almost 10% for diesel).

Depending on the county in Florida, you may owe up to 12 more cents per gallon on top of the state gas tax of more than $0.42 per gallon.

But let’s pick on California for now. Let’s say you go get 15 gallons of regular unleaded at the national average of $4.331 per gallon, for a total of $64.97 (or, put another way, that’s 54% of your pre-taxed dollars earned for a half-day of work at $15 an hour OR a 9-hour shift working at the federal minimum wage).

What happens when we remove the federal gas tax? Congratulations, you just saved yourself $2.76 (thanks Biden). But what happens if you suspend California’s state gas tax?? You save $9.90 (thanks Newsom), and if you suspend the application of sales taxes on top of the already taxed to death gasoline you’re trying to buy, well now you’re saving $11.36. All told, in this scenario, you’re spending $14.12 in taxes, which is 22% of your total purchase, and only 20% that is from the federal government.

All told, state gas prices (except for Alaska and Missouri) are between 2 and 264% more than the federal gas tax before the states that apply additional local taxes and sales taxes.

So again, I struggle to agree that this is “Biden isn’t doing enough” narrative when this boils down to 50 other governors and legislative bodies that should be the ones addressing the needs of their constituents. And then, of course, there’s Congress that could be legislatively tackling these issues, but they’d rather blame the one person who has almost no control over the situation.

Release More Reserves

Biden has already committed to doing this, by releasing 30-million barrels, which is equivalent to 333 days of oil from Russia, and 59-days of oil that we’d allegedly get if we had Keystone XL already pumping oil. This has done nothing to lower gas prices, at least not yet anyway. But this is a short lived solution, especially when we consider that committing to this did nothing for volatility in the market.

Biden should do this, and continue to do so accordingly.

Commit To More Production

We’ve been doing this for three years already, and this sort of thing cannot just happen over night. It will take time to restart oil rigs, hire people, train people, produce oil, and ship it. Not only that, but to what extent we produce more is going to depend on how much Biden wants to railroad his own environmental goals, and it’s not likely that he is willing to budge a lot on that.

I’m not opposed to more production in the short term, but I am more inclined to argue that this is a good time to invest in cleaner fuels and alternative energy. Biden can certainly commit to more production, but Biden has very little control over this, if any at all.

Allow Winter Gasoline To Be Used In The Summer

Wait, there’s a summer and winter blend of gasoline? Yes. But there’s a trade off to allowing winter fuel to be used during the summer. For one thing, the summer blend of fuel is more expensive, primarily because it is costlier to make. Why is summer “hotter” than the winter blend? It has to do with the environment. Gas tends to evaporate more quickly in the summer which leads to greater smog problems. So during warmer months — and entirely contingent upon state regulations and production methods — the gasoline is produced so that it is less likely to evaporate. In winter months, gasoline is produced to increase the ignition potential and likelihood of evaporation so that your car can start easier. This happens to be cheaper to produce, but also more damaging to the environment.

The summer blend tends to be used from May to September, and the winter blend from October to April. So the idea that we ought to use the winter blend in the summer months does not impact gas prices now because we’re already using the winter blend.

This may help to keep prices down by $0.15 per gallon entering into May, and so could be a solution for later. It’ll just come at the expense of environmental goals, keeping emissions lower, and increase smog related problems in your more congested urban areas.

I’m a fan of compromise though, and I think that Biden should be supportive of this even if it’s a short term response once summer hits.

Trade With Other Countries

Sure. That’s fine. We could go to Venezuela, or Iran (who just sent ballistic missiles raining down on the US consulate in Iraq as a warning) to replace the 90,000 barrels of oil that we were receiving from Russia per day. But this is not going to be an immediate fix, either. Not only will this take time, but it is also already something that the Biden administration is trying to do by rebuilding our relationship with OPEC, and Saudi Arabia (who just killed 81 prisoners in the largest mass murder in decades, some for “defiant beliefs” of the country). So to say that Biden can somehow do more on this is absurd when he started this back in November of 2021. In my opinion, Biden should prioritize clean and alterative energy.

And just to play devil’s advocate for one second, if we’re willing to damage the environment, and entertain the ideas of getting oil from Iran, rebuilding with Saudi Arabia, or creating a relationship with Nicolas Maduro (President of Venezuela), then perhaps we ought to entertain the idea that we simply don’t stop getting oil from Russia. Except that’s stupid. We should stop getting oil from Russia because they’re waging a war of aggression against a peaceful and independent country. My point here is simply to highlight that there is no simple or single or short term solution.

Final Thoughts

These are just some ideas, and as you’ve likely been able to tell, there are no quick solutions.

And let me say this, too, while I’m here. There’s a lot of saber rattling and rhetoric about how this is all just proof that we need to be “energy independent.” We’re already almost there, and in fact, in 2016 the US was between 86 and 91% self-sufficient with respect to energy. 1% of that came from Russia.

We can be a 100% self-sufficient country in terms of energy, and still suffer from economic volatility due to the calamitous outcomes of other country’s (and people’s) poor choices.

So when Kevin McCarthy says something clearly rhetorical and propagandistic like:

Kevin McCarthy tweeting nonsense by being Kevin McCarthy

Then you can kindly point out the following chart:

This chart shows the price of oil and gas traded as a commodity (left: DWCOGS, lines showing open, close, high, low, and average) and the price of gas at the pump (right: yellow filled area).

You can show them this chart as well:

This chart is basically showing the same as the chart above, but it scales gas prices with Brent Oil Continuous and WTI Oil Continuous Contracts against gas prices being paid at the pump. It’s pretty clear to me that this is a market volatility issue in context of Putin’s invasion of Ukraine.

One final chart for you, just to drive this home.

This chart is showing the percent change week-over-week of Brent & WTI oil futures with the change in gas prices over the last 52-weeks (one year). For those yelling about how it’s Biden’s fault, point them to this. Yes, futures were going up (starting in December). Part of that was likely driven by just regular shifts in the market, along with decreases in state mask mandates and more businesses having less remote work, and as a build up in preparation of Russia invading Ukraine, followed by Russia invading Ukraine.

So just as much as I disagree with Kevin McCarthy’s conflicting statements aggregated into “we need to be independent, but lets demonstrate that by building the XL Keystone pipeline from Canada” [emphasis added] nonsense, I also strongly disagree with the notion that “Biden is messing things up,” not least of which because there’s not much he can do and isn’t already doing (and because others can do a whole lot more), but also because it’s not Biden’s fault that companies are greedy, and investors are flighty every time a foreign country wages war on another.