Who is to blame for rising gasoline prices?

Last week the national average price for regular gasoline rose to $ 2.71 per gallon. That marks an increase of $ 0.46 / gallon since the beginning of the year.

Every day I see allegations on social media that this price increase is due to Joe Biden winning the presidential election. I’m going to explain why this is silly, but I’d set the following for those who think this is true.

Since Biden’s inception, Covid-19’s daily affairs have dropped two-thirds. Daily deaths are down nearly half. Is Joe Biden responsible for this? If you say “No”, or feel that you need to domesticate or substantiate your answer, you may understand that reason and effect are not that simple. The same is true for gasoline prices.

The main reason I can say that Biden is not responsible for the rise in gasoline prices is that we fully understand why these prices are rising. These reasons have (mostly) nothing to do with it.

The single biggest factor influencing changes in gasoline prices is almost always fundamental changes in the price of oil. Show me a time when gasoline prices were spinning or falling, and most of the time you will find that oil followed the same pattern.

On the first trading day of January 2021, the price of West Texas Intermediate (WTI) closed at $ 47.47 per barrel (bbl). Two months later, on the first trading day of March, the price closed at $ 60.54 / bbl. During the period gasoline prices rose $ 0.46 / gallon, oil prices rose by $ 0.31 / gallon.

But gasoline prices often weaken oil prices. In the last six months, the price of oil has gone up $ 0.56 / gallon, while the price of gasoline has gone up $ 0.50 / gallon. In other words, most of the rise in gasoline prices can be caused by the rise in the price of oil.

I will explain other factors that affect the price of gasoline below, but why are oil prices rising? Is Biden responsible for that?

These are two factors that have raised the price of oil. One is that demand fell last year when pandemics were implemented and people stopped traveling. That, in turn, ended up with 3 million barrels per day (BPD) of U.S. oil production compared to a year ago.

As the pandemic approaches, demand for oil is kicking back. Supply does not respond as quickly, so that puts pressure on prices. If you believe that Biden is responsible for accelerating the end of the pandemic, you can put some blame on him for rising oil prices. But that’s because the economy is starting to recover, which is good.

Second, unlike a year ago, OPEC and Russia decided to cooperate by extending most of the current output cuts. Despite a slight rebound in demand, Saudi Arabia maintained a 1 million BPD cut instead. That decision pushed oil prices significantly higher, and is likely to ensure additional gains in gasoline prices.

Beyond oil prices, what other factors affect gasoline prices? One of the most important events is any event that limits the ability to spawn. If the crude oil cannot regenerate, gasoline supply will start running low. That, in turn, causes gasoline prices to rise. This often happens when hurricanes are churning through the Gulf of Mexico, but it also happened last month when the winter storm passed through Texas.

In the first two weeks of February, brewing consumption in the US was 83%. Then the winter storm badly affected about a dozen winters in Texas. By the last week of February, brewing consumption had fallen to 56%. Again, that’s hard to put on Biden.

There are only two ways in which a President could have a short-term impact on gasoline prices. Going through legislation changing the gasoline tax, which currently accounts for about 21% of the cost of gasoline, would quickly affect gasoline prices. Alternatively, if the President announced a major oil spill from the Strategic Petroleum Reserve, that could cause oil prices to plummet for a period of time and potentially affect short – term gasoline prices.

In the longer term, there are certainly things Biden can do to influence gasoline prices. Some of the moves he is making now may affect prices. But those are long-term effects. Other than the two mechanisms I mentioned above (or, I believe, it could also increase military action in the Middle East), the President has no way of pushing gasoline prices to tidy.

Where do prices go from here? Definitely higher. One final fact that will affect gasoline prices is whether the U.S. has a winter or summer gasoline season. Winter gasoline blends are cheaper to produce, and demand is lower.

By summer, gasoline mixing costs more and demand is higher. Therefore, the price of gasoline usually goes up between January and May. Last year was a notable exception caused by the pandemic, but higher gasoline prices entering the summer are normal.