The price of gasoline has hit $4.95 at Wawa in Leonardo, NJ, where I fill my tank. Now, it takes $160.00 to fill my F-150 pickup truck.
I had been doing research for an article meant for a different publication on the US Energy problem. During my research, I looked at SEC filings for the Oil $ Gas sector and noticed record profits. Given that prices are up, and production is down and scrambling, and the executives are grumbling, I was even more curious. I posted my thoughts that Oil & Gas corporations were price gouging.
It was meant as an industry observation and I assumed that most people knew that during times of national inflation price gouging is not unheard of. The first comments agreed. Then came a flurry of comments from a friend of thirty years that quickly attempted to turn my industry observation into a polarized political statement Even as I attempted to explain that I had made an observation by looking at public companies’ financial statement, the rhetoric became more heated, and people began fighting with each other (I had never even heard of some of these people before) on my Face Book page! I was inundated by DM’s demanding that I look into Nancy Pelosi’s Pfizer stock holdings and how she initiated the “COVID hoax” as well as other pieces of “news” for which I have no points of reference.
In frustration, I took the post down as I believed that my observation and the maelstrom which ensued was becoming dangerous to those battling one another over politics (Trumpism vs. Liberalism), and I was concerned that someone could actually get hurt.
I spent the next day stupefied that the country has gone to such extent that just about everyone has taken sides and will fight, verbally and physically, at the drop of a hat over political parties and ideologies that are not their own, but born of cable news networks, complete with their talking points. Another troubling aspect of this cyber altercation was that I know most of these people personally. They are not “social media friends”, but actual long time real friends. This was an example of extremism (regardless of right or left) nearing the breaking point.
I finished the other article but have been driven to take this incident apart. Where did all of these people get their information and what made them truly believe that the President of the United States, regardless of who that may be, at any given time. has the autonomy to set oil and gas prices, not only for the United States, but globally as well. Where did “news” sources come up with this notion and so blithely, and irresponsibly, echo it across the airwaves?
So, let’s look at the allegations from my Facebook page donnybrook and compare that to how Gasoline prices are set in the real world.
Senator Mitch McConnell, in a speech back in March 2022, claimed that the administration would rather import energy from Iran and Venezuela than purchase from Texas, Alaska and Pennsylvania.
Senator Roger Marshall (KS) said on Fox News “…this President has declared war on American energy.”
By April of 2020, Monmouth County roads, as well as roads throughout the rest of the country, were empty as the unfettered version of COVID19 stalked our communities looking for victims. Demand for gasoline and oil evaporated. Prices fell through the floor. The average price for a barrel of oil in April 2020 was negative $37.63. Oil and gasoline producers throughout the world began to curtail production.
Later, as Pandemic restrictions were relaxed, and people returned to some semblance of normalcy, demand for oil and gas began to quickly outpace production levels and on hand supply. A shortage of labor contributed to this as well.
Next came the Russian invasion of Ukraine and as a result, the escalation of inflationary pressure on the oil and gas industry globally.
Even Biden’s vow to lower emission and reliance on fossil fuels had little impact on the oil and gas sector. Though, in fairness, would have turned off some investors in the sector.
McConnell’s statement that the administration is courting Iran and Venezuela to secure oil imports is, in part true. The United States is looking at every option. But what is not part of the narrative on cable news and social media, is that Biden has urged US oil producers to ramp up production and take advantage of existing leases. (Note: There are more than 9,000 approved permits to drill on federal lands that are not producing oil and gas. This information has been verified. Some 2000 of these leases are held up in various litigations, leaving about 7000 open for exploration and production.)
Representative Jim Jordan took to Twitter and various news outlets to announce that one of the key ways in which the administration is responsible for the high price of fuel is that Biden cancelled the Keystone pipeline.
First, the Keystone pipeline lives. Actually, it has been live and flowing since 2010. The pipeline was completed in phases.
Phase 1 went online in June 2010:
This 3,456-kilometre-long (2,147 mi) pipeline runs from Hardisty, Alberta, to the junction at Steele City, Nebraska, and on to the Wood River Refinery in Roxana, Illinois, and Patoka Oil Terminal Hub (tank farm) north of Patoka, Illinois.
Phase 2 was constructed in 2010 and went online in February 2011: The Keystone-Cushing pipeline phase connected the Keystone pipeline (phase 1) in Steele City, Nebraska, south through Kansas to the oil hub and tank farm in Cushing, Oklahoma, a distance of 468 kilometers (291 mi) long.
Phase 3a: The Cushing Market Link pipeline phase started at Cushing, Oklahoma, where American-produced oil is added to the pipeline, then runs south 435 miles (700 km) to a delivery point near terminals in Nederland, Texas, to serve refineries in the Port Arthur, Texas, area. Keystone started pumping oil through this section in January 2014. Oil producers in the U.S. pushed for this phase so the glut of oil can be distributed out of the large oil tank farms and distribution center in Cushing.
Phase 3b: The Houston Lateral pipeline phase is a 47-mile (76 km) pipeline to transport crude oil from the pipeline in Liberty County, Texas, to refineries and terminal in the Houston area. This phase was constructed 2013 to 2016 and went online in 2017
Phase 4: This would have been the extension known as Keystone XL. Indeed, it was cancelled. However, contrary to Sen. Roy Blunt erroneous statement that the Keystone XL would have “produced” roughly the same number of barrels that the US currently imports from Russia, the extension would have done nothing to increase production. It would have been an extension of an existing transport system that would mingle US produced oil with the Canadian Tar Sand Oil already in the system. The pipeline would produce nothing. “The pipeline is just a delivery mechanism, it is not an oil field,” Jenn Psaki said in a press conference. “It does not provide more supply into the system.”
In addition, Tar Sand is dirty. Tar sands (referred to as oil sands in Canada) are a combination of clay, sand, water, and bitumen, a heavy, black, asphalt-like hydrocarbon. Only a specialized refinery can process bitumen and turn it into refined products such as fuels. Few refineries in Canada can do it. None of the refineries in eastern Canada can refine large quantities of bitumen. The kicker is that Tar sand was never meant for US consumers. After processing, it is sold overseas.
Had the Keystone XL extension continued, it would have crossed over the Ogallala Aquifer, which underlies an area of approximately 174,000 sq mi in portions of eight states (South Dakota, Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico, and Texas) and supplies drinking water to 82% of the approximate 2.3 million people who live within the boundaries of the High Plains area. One can only imagine the impact that a spill would have on US agriculture and the lives of those 2 million people that depend on the aquifer for essential drinking water.
That covers the misinformation spewed on my Facebook page. What was I talking about when I suggested that oil companies were price gouging and we, the consumers, were taking the hit at the pumps?
First, what influences gasoline and oil prices? According to the US Energy Information Administration, The retail price of gasoline includes four main components: the cost of crude oil (which makes up 53.6% of the price we pay at the pump), refining costs and profits (which makes up 14.4% of the price we pay at the pump), distribution and marketing costs and profits, (which makes up 15.6% of the price we pay at the pump) and state & federal taxes (which makes up 16.4% of the price we pay at the pump).
Crude oil prices react to many variables, including supply and demand prospects and the perceived risk of market disruptions. Economic growth can drive up the demand for crude oil, while slowdowns tend to lower demand and prices.
Refining costs and profits are highly variable and dependent on seasonality and region of the country. Gasoline in New Jersey is not necessarily the same as gasoline in Wyoming. The US EIA says that this is “because of the different gasoline formulations required to reduce air pollution in different parts of the country. The characteristics of the gasoline produced depend on the type of crude oil that is used and the type of processing technology available at the refinery where it is produced. Gasoline prices are also affected by the cost of other ingredients that may be blended into the gasoline, including fuel ethanol. Gasoline demand usually increases in the summer, which generally results in higher prices.”
Distribution, marketing, and retail dealer costs are all part of the cost factors of the retail price we pay at the pumps. Gasoline, in general, is shipped from refineries via pipeline to terminals near consuming areas, where it is be blended with other products to meet local government and market specifications. Then, the gasoline is delivered by tanker truck to individual gasoline stations.
Gas stations are owned, either by independent businesses or some retail outlets are owned and operated by refiners. The price at the pump also reflects local market conditions and factors, such as the fueling location and the marketing strategy of the owner. In addition, the cost of doing business by individual gasoline retailers can vary greatly depending on where a gasoline fueling station is located.
Taxes add to the price of gasoline: According to the EIA, “Federal, state, and local government taxes also contribute to the retail price of gasoline. The federal tax on motor gasoline is 18.40 cents per gallon, which includes an excise tax of 18.30 cents per gallon and the federal Leaking Underground Storage Tank fee of 0.1 cents per gallon. As of January 1, 2022, total state taxes and fees on gasoline averaged 31.02 cents per gallon. Sales taxes along with taxes applied by local and municipal governments can have a significant impact on the price of gasoline in some locations.”
Another aspect to remember is that the price per barrel of crude oil is also managed by organizations like Organization of the Petroleum Exporting Countries (OPEC), World Petroleum Council (WPC), World Petroleum Council, World Energy Council (WEC), International Gas Union (IGU), and International Group of Liquefied Natural Gas Importers (GIIGNL). These organizations determine what the price per barrel will be depending on demand and supply. During good economic times, we experience inflation and demand becomes higher than production levels, so the fuel prices skyrocket.
As pointed out, many factors influence the price at the pumps. The President of the United States has little impact on the price of fuel. However, Inflation and the cost of crude oil by the barrel are key factors.
Tapping the brakes on the economy:
During times of economic growth and low unemployment, we see inflation. The oil industry, as well as other sectors raise prices accordingly. Remember, even though the cartels set the barrel price of crude, the oil companies based on a complex series of factors including local market data, set prices at the pump. Continued speedy economic growth, like what we have seen over the last year, will lead to increased inflationary pressure rather than relief. The Federal reserve has taken steps to slow the country’s economic growth. It seems to be working. Our growth rate is on track to slow way down over the next few months. This could be what the nation needs. As such, there is a good chance that we will see gas prices begin to fall as well. The downside is that economic slowdowns leave the country vulnerable to recession. So, the Federal Reserve is performing a balancing act that, if successful, will bring the economy and inflation under control.
Taking a profit:
Lastly, let’s look at the data from the SEC as to the growth of a few top oil companies over the last few years. To put the data in easier to manage perspective, we will look at annual earnings as earnings per share.
Exxon: XOM NYSE
2019 $2.24 per share
2020 Negative $0.33 per share (due to COVID19 as discussed above)
2022 (Estimated annual earnings) $10.04
Chevron Corp: CVX NYSE
2019 $6.27 per share
2020 Negative $0.20 per share (due to COVID19 as discussed above)
2021 $8.13 per share
2022 (Estimated annual earnings) $16.47
Shell PLC: SHEL NYSE
2019 $4.08 per share
2020 $1.24 per share
2021 $4.98 per share
2022 (Estimated annual earnings) $9.18
In the data, we see the pre-pandemic earnings per share as a baseline. The drop of revenue is clearly evident in 2020. Then we see an uptick of profit over 2019 numbers in 2021. Then an unprecedented earnings growth in 2022.
Again, while cartels set the price of barrels of crude, the oil companies set the price at the pumps based on many factors including what local markets will bear.
2021 was the recovery from the COVID19 pandemic for big oil. 2022 is all about profit. Profit from pain at the pumps.
So, in the end, President (insert name here, as it doesn’t really matter) has very little to do with the prices at the pump. The oil industry is not “handcuffed”. The Keystone Pipeline is flowing like mad. The Keystone XL was merely to be an extension and would never have more added crude to the system. It was just a transport system, not an oil field. The oil industry sets the price at the pump and is taking advantage of America’s inflationary pain for extraordinary profit. (Price gouging).
Regarding that social media brawl mentioned earlier; It’s alright to have your own opinion. It’s alright to disagree with the opinion of others.
It is nowhere near alright to humiliate others because they do not think the way that you do. Our society needs more respect and tolerance and much less extremism and manufactured outrage. Even out here in the fields.