Funny how a few months change things.
When gas prices roared past the $4 mark this spring and topped $5 in early June, President Joe Biden couldn’t get the words “Putin price hike” out of his words fast or often enough. The president said it wasn’t his fault. It was Covid, greedy oil companies, or the second-most evil human on the planet, Vladimir Putin.
With gas prices coming down but still about a buck and a half above where they were on Inauguration Day, Biden wants you to know: he did it!
The fawning media has that familiar tingle running up its leg. You know you’ve come to the end of the internet when you get to a New York Times column about the president written by its “fashion director and chief fashion critic,” Vanessa Friedman, writing political commentary about how cool Biden’s aviator sunglasses are.
Not to doubt Ms. Friedman’s fashion sense, but those glasses are so 1980s.
I know what you’re thinking. I blame Biden for prices going up, but I won’t give him credit when they come down.
I acknowledge that Biden isn’t the sole reason for the increases in energy prices. There’s an “invisible hand” that ultimately determines prices in a free market. It’s fair to say that Covid affected prices — Covid hurt every sector of the economy. Natural disasters took some drilling and refining capacity offline. Russia’s invasion of Ukraine has destabilized energy futures worldwide. While those factors didn’t help, Biden is culpable for causing gas and oil prices to rise.
What did you think would happen if we elected somebody president who repeatedly demonized the energy sector? Most liberals openly rooted for significantly higher gas costs to force the green agenda on Americans unwilling to go along with their vision.
In September 2019, after referring to a young woman in the audience as “kiddo,” he told her: “I want you to look at my eyes. I guarantee you. I guarantee you. We’re going to end fossil fuel.” Depending on the day and state he was campaigning in, he pledged to end fracking too.
The guarantees candidate Biden made didn’t inspire oil companies to invest capital and take chances looking for additional petroleum reserves. The Biden administration’s regulatory agenda has lived up to the advanced billing.
The U.S. Energy Information Administration (EIA) reports that refining capacity fell by approximately 200,000 barrels per day in 2020 and 2021. While natural disasters may have temporarily shut down several facilities, the Biden administration is why they aren’t coming back online.
Philadelphians will recall the 2019 Philadelphia refinery explosion. Operations at the South Philly location began in the nineteenth century. The Philadelphia Energy Solutions (PES) was the tenth largest refinery in the U.S., processing up to 335,000 barrels of crude oil per day according to a CNN report at the time of the explosion.
Between the factors, it could control (regulations) and those it couldn’t (Covid), oil demand fell during the pandemic when people stayed home; offices didn’t need to be lit, heated, or cooled as much.
So why have gas prices fallen since mid-June?
- The last time I checked, Russia and Ukraine were still fighting. Whatever embargoes on Russian goods were in effect in June are still in place, maybe tighter.
- Did the oil companies stop being greedy since June? Have they decided to stop gouging consumers? Biden did send them a memo. You could argue…Nah.
- How about Covid? According to the EIA, gas prices peaked on June 13 (the national average for all grades (without taxes) was $5.11. The most recent data shows $3.99 (per gallon). On June 13, the CDC reported the seven-day average of 106,812 cases. The most recent data is lower, with 88,391. Maybe there’s a correlation between gas prices and the number of Covid cases?
The answer is, of course, much simpler than that.
The laws of supply and demand, “the invisible hand,” Adam Smith wrote about in the eighteenth century, is as true today as when he proposed the idea. When demand falls, inventories build up, and prices fall.
Oil companies slowed production, so supply met demand. When people could get out again, the oil companies weren’t ready for demand to come back so quickly. Too little supply and too much demand caused prices to rise rapidly. Now, prices are falling into equilibrium. Will we see $2.75 again? Doubtful.
The EIA measures gasoline demand by the amount of finished product (measured in thousands of barrels/day) delivered to retail outlets weekly. It’s a cool chart and graph. If you look at it for a split second, you won’t have to guess where the pandemic is on the chart.
Although there isn’t a perfect correlation between demand and gas prices, the historical data paints a clear picture.
Let’s slice the data in two different ways. First, look at the Fourth of July week across four years, starting with pre-pandemic 2019.
|Fourth of July Week – Year||# Barrels finished gasoline delivered daily (thousands)||Average price – all grades|
With 2019 as a baseline, prices and demand were high. The pandemic brought the lowest numbers for both in 2020. Biden gave a speech from the south lawn of the White House on July 4, 2021. He declared it “Independence Day from Covid.” He said: We’re back traveling again. We’re back seeing one another again.” He wasn’t wrong because that week had the highest demand for gasoline of any week since the EIA started tracking it in 1991. Americans were more cautious this year, and we know what happened to prices, although they were already coming down.
The lowest demand came at the start of April 2020, when demand barely reached 5,000 barrels per day, nearly half of pre-pandemic levels. Prices bottomed out at $1.87/gallon near the end of the month. Oil prices were so low that some oil companies stopped drilling and several refineries shut down.
|Period||# Barrels finished gasoline delivered daily (thousands)||Average price – all grades|
|June – Dec 2019||9448||2.75|
|Jan – May 2020||7752||2.27|
|June – Dec 2020||8433||2.26|
Jan – May 2021
|June – Dec 2021||9287||3.32|
|Jan – May 2022||8679||4.05|
|June – Aug 19, 2022||8867||$4.61|
As 2020 ends, gasoline demand is pacing high. Prices are at the high end of normal. When the pandemic hits, it’s a shock to the system when demand drops almost 20 percent, and prices fall. Although demand increases a little in the second half of the year, prices do not until the start of 2021. When demand returns to near pre-pandemic levels, prices start to take off. The yo-yo is straining drilling and refining operations.
The external factors Biden and his administration cite, including the “invisible hand,” of supply and demand, drove prices down and back up. A president who is hostile toward the energy industry, and an administration issuing prohibitive regulations, are additional forces that tip the scales in a way that causes prices to rise higher and thus far not come back as low as before.
The credits and debits don’t work the same way as accounting. They don’t balance one another. In the case of President Joseph R. Biden and gasoline prices, the debits exceed the credits. Demonizing and over-regulating the energy industry caused prices to rise more than his memos to the companies complaining they were gouging consumers, caused them to come down.
Andy Bloom is president of Andy Bloom Communications. He specializes in media training and political communications. He has programmed legendary stations including WIP, WPHT and WYSP/Philadelphia, KLSX, Los Angeles and WCCO Minneapolis. He was Vice President Programming for Emmis International, Greater Media Inc. and Coleman Research. Andy also served as communications director for Rep. Michael R. Turner, R-Ohio. He can be reached by email at firstname.lastname@example.org or you can follow him on Twitter @AndyBloomCom.