The US Produces as Much Oil as It Consumes. So Why Should Gas Prices Go Up?
by John Lawrence
The US is the world's largest oil producer at about 18 million barrels per day. Saudi Arabia is number 2 while Russia is a close number 3. The US is also the largest consumer or oil at about 18 million barrels a day. So the US produces about as much oil as it consumes. So why doesn't the US control the price of its own oil? Because oil is put on the world market so the price is determined by the supply and demand for oil on the world market. If there is a shortage on the world market, the price of gas goes up for US consumers. That is what is happening now because of the Russia Ukraine situation and the US sanctions on Russian gas and oil. Because of the sanctions, the price of gas for US consumers will increase so President Biden is essentially shooting US consumers in the foot. Why couldn't he take US oil out of the US market and just let US oil be consumed by US consumers. Since supply and demand would be about equal, there would be no surge in US oil prices.
The problem is that the US government does not own US oil resources. They are privately owned, and it's in the interests of the oil corporations to get as much for a barrel of oil as they possibly can. This means that when there is a shortage on the world market, and the price of a barrel goes up, US oil corporations profit from the price increase. There is an analogy which makes this process easily understandable.Say you are a grower of tomatoes. In the early days of your tomato business you just sold the excess tomatoes that your family didn't eat to your neighbors directly at what you both thought was a fair price. As time went on you decide to take your tomatoes to the local market where other tomato growers were also bringing their tomatoes to sell. The price of your tomatoes was then determined by the market price and not the "fair" price you charged your neighbor. If there was a shortage of tomatoes at the market compared to the cumulative demand for tomatoes by consumers, you made a lot more per tomato than you would make selling them directly to your neighbors at the "fair" price. When your neighbor comes to you for tomatoes, you tell him that he has to buy them at the market at the market price because this represents progress.
Now say there is a glut of tomatoes at the local market and the price of tomatoes drops. Now you offer to sell your neighbor tomatoes directly at the "fair" price, but your neighbor says that he can get them at the market for much less than the "fair" price. Such are the vagaries of the market place. So getting back to oil, when there is a glut on the world market, gas prices plummet. When there is a scarcity, prices can skyrocket which is what is happening now not due to the war in Ukraine but due to sanctions on Russian gas and oil which constitutes a major component of the world supply. President Biden can do little or nothing about the price of gas because oil and gas resources are privately owned and they will profit immensely as the price of oil soars above $100 a barrel. However, much of Russia's oil industry is state owned. Therefore, Putin can control the price of gas and energy inside Russia so Russian drivers will pay less at the pump than will American drivers in all probability.
So now while the world needs to transition from fossil fuels to renewable non-polluting energy sources in order to combat global warming, all anyone can think about is how desperately we need oil and the price of gas. This is a foreboding situation for the future of planet earth. We need to get off of our addiction to oil. However, there are trillions of dollars wound up in the oil industry and none of the owners whether they be private or government concerns are willing to give up their investments. Maybe surging gas prices are a good thing. People will drive less, use public transportation more and work remotely from home instead of commuting. Less tailpipe carbon dioxide will be emitted into the atmosphere. In the long run we should thank President Biden for sanctioning Russian oil and the NORD stream 2 pipeline. It will help the global warming situation although American consumers will not be pleased with Biden because they will blame him for gas prices being so high.