Want to sharply cut oil and gasoline prices and simultaneously reduce Big Oil profits and slash Russian oil earnings? Just end the Biden administration’s regulatory assault on production and transporting of American fossil fuels.
President Biden campaigned on a pledge to eliminate fossil fuels. “I guarantee you, I guarantee you we are going to end fossil fuel…”
To follow through on this pledge, the Biden administration has used regulatory actions to cancel the Keystone XL pipeline, delay selling oil and gas leases on federal land, delay offshore leases, suspend leases in Alaska’s Arctic National Wildlife Refuge, withhold drilling permits, block other pipelines, and threaten to starve the oil and gas industry of investment capital with new onerous and potentially impossible to satisfy investment disclosure requirements. It also has raised the “social cost of carbon” used in regulatory leasing and permitting decisions from $7 to $51 per metric ton of greenhouse gas emissions.
These regulatory actions substantially changed oil industry economics. They increased the costs of producing and transporting oil, unfavorably shifted oil producers’ cost-benefit calculations, discouraged oil production, and raised the prices of both oil and gasoline.
The paths of oil and gasoline prices in recent years show the damage these regulatory actions have caused. In January 2017, the price of West Texas Intermediate was $52.81. It rose to $74.15 in June 2018, fell to $51.56 in January 2020, just before the pandemic, then sharply dropped to $18.84 in April 2020, before rebounding to about $50 in December 2020.
Under the Biden administration, the price rose from that $50 to $88.15 in January 2022, a month before Russia invaded Ukraine, went up yet more to $95.72 in February with the invasion, and then went over $100.
Gasoline prices followed a similar path. They started at $2.46 in January 2017, went up to $2.99 in May 2018, went down to $2.64 in January 2020, sharply dropped to $1.94 in April 2020, and ended this period back up a little to $2.28 in December 2020.
Under the Biden administration, prices spiked from that $2.28 to $3.41 in January 2022, rose yet more to $3.61 in February, and then spiked again to $4.32 in March.
Reversing all of the Biden administration’s regulatory actions described above would substantially lower the costs of producing and transporting oil, favorably shift oil producers’ cost-benefit calculations, encourage oil production, and decrease the prices of both oil and gasoline.
How fast and how much prices would decline would depend upon many factors, particularly how quickly, conclusively, and convincingly these regulatory actions are reversed, but recent history shows that oil prices respond quickly to substantial changes in oil industry economics.
For example, when the early pandemic shutdowns sharply reduced demand for gasoline, jet fuel, and other oil products, the $51.56 January 2020 price of West Texas Intermediate sharply dropped to $18.84 by April 2020.
Gasoline prices tend to fall more slowly than oil prices. As Lipow Oil Associates president Andy Lipow recently explained, the oil industry has long described the path of gasoline prices as “rockets and feathers” — as in up like rockets and down like feathers. “This has been going on for 40 years,” Lipow said. “Prices do dip. It just seems to take a long time.”
But not always. The sharp early 2020 drop in oil prices pushed the $2.64 January 2020 gasoline price down to $1.94 by April 2020.
The Biden administration’s April 15 announcement of oil and gas lease sales on federal land — albeit with an 80 percent reduction in the land that had been under evaluation for leasing, at a royalty rate increased from 12.5 percent to 18.75 percent, and with no assurance that related drilling permits or pipeline permits will subsequently be issued for the leased parcels — is a small step in the right direction.
An immediate and conclusive reversal of the rest of the Biden administration’s regulatory actions described above, in a manner that sufficiently convinces industry participants that the reversal is not temporary, would effectively return oil industry economics to essentially their position before Biden took office and point to oil and gas prices returning to their respective January 2017-January 2020 ranges of $51.56-$74.15 and $2.46-$2.99 (with upward adjustments based on inflation).
This policy reversal also would cut Big Oil profits. Chevron’s and Exxon’s net incomes, for example, were never as high in any quarter in 2017-2020 as they are now. This should please the progressives who have railed against the oil industry’s recent profits.
The reversal would have another big benefit: it would slash Russian oil earnings that fill Putin’s war chest.
Despite the sharp increase in oil prices from January 2021 to December 2021, Russian oil exports each month stayed within the same tight range of 7.5 to 7.8 million barrels per day. This means that the Biden 2021 oil price spike sharply increased Russian oil earnings.
Notwithstanding recently imposed U.S. and international sanctions, Reuters recently reported that “Russia expects to earn $9.6 billion more in April due to high oil prices” than it had planned before the sanctions. Reverse the Biden administration’s regulatory actions and Russian oil earnings would drop like a rock.
Oh, and for those of you concerned about any global warming that may result from increased U.S. oil production, as I recently explained here these concerns are unfounded.
Stop the Biden administration’s regulatory war on American fossil fuels! Oil prices, gasoline prices, Big Oil profits, and Russian oil earnings would all be lower. What could be better?
David M. Simon is a senior fellow at the Committee to Unleash Prosperity and a lawyer in Chicago. For more, please see www.dmswritings.com.