What Is the Real Reason for High Gas Prices?

what is the real reason for high gas prices

When gas prices spike, we argue.

It’s the current president’s fault. It’s the previous president’s fault. It’s about the Russian invasion of Ukraine, and on and on.

Now Yahoo! Finance columnist Rick Newman suggests that politics and war aren’t the problems, but simple economics are.

Newman says that while sanctions against Russian oil play a part, oil companies are reluctant to produce more oil because if they overproduce, they’ll see their profits sink.

He points to an oversupply situation that existed from 2015 to 2020, and how profits cratered during that time, before the coronavirus pandemic made the situation even worse.

There have been some calls for the Biden administration to allow for more drilling, but Newman cites a policy expert who says that it won’t matter: “The amount of oil and gas leasing the Biden administration has done makes absolutely no difference in the amount of oil and gas we’re producing right now,” said Samantha Gross, director of the energy security and climate initiative at the Brookings Institution. “These things take a while. The industry tends to have a backlog they’re figuring out what to do with.”

Newman also notes that the Biden admin has been criticized by environmentalists for allowing too much drilling, and that most drilling takes place on private land — meaning there’s no need for federal permits anyway.

I’m not defending or critiquing the admin here, nor am I evaluating Newman’s claims. While I/we do that sometimes here, I am not well-versed in the oil market enough to really know if he’s correct or not. But I did find the piece intriguing as a possible explainer for what’s happening with fuel prices.

I’m also a fan of Occam’s Razor — the simplest explanation is the most likely. It seems to me that for all the hullabaloo about fuel prices, it’s likely that simple business realities, and not political decisions, are the cause of high prices at the pump.

Newman may or may not be right, but it’s food for thought.

[Image: Shutterstock.com/ALPA PROD]

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  • Slap Slap on Mar 23, 2022

    I live in the DC area. The Trucker's Convoy people are upset that so many drivers are giving them the finger and telling them to go F themselves. I was out on the Beltway two weeks ago - I saw just 6 pickup trucks flying flags. I was out there again today and saw none.

    • See 1 previous
    • Art Vandelay Art Vandelay on Mar 24, 2022

      @teddyc73 wrong spot

  • FreedMike FreedMike on Mar 24, 2022

    By the way, in case anyone's still wondering why more oil production isn't happening, here's some data based on a survey done by the Dallas Fed of actual oil producers: https://www.dallasfed.org/research/surveys/des/2022/~/media/Images/research/surveys/des/2022/2201/des2201c5.png Almost 60% of them said that the key factor was pressure from their own investors and shareholders to keep oil prices high. No one's constraining their production - they're doing it on their own.

  • MaintenanceCosts So someone really did build that car I drew while not paying attention in second grade. Too bad they screwed it up so badly.
  • MaintenanceCosts A bit after that experience, my family ended up owning an '88 Accord and an '87 Taurus--Detroit's big triumph--at the same time. The win for the Accord wasn't total; the Taurus's engine was better and it was quieter. But the difference in build quality and refinement can't be overstated.There were no rattles in the Accord, the materials are to this day some of the best in any car I've ever owned, every control operated with precision and just the right feel, and the ergonomics were perfect. By contrast, the Taurus was full of rattles from the day we got it, had hard plastic and slapdash fits all over the interior, had mouse-fur upholstery that showed wear by 60k miles, some parts of the control layout were nonsensical, and my car had a number of obvious assembly defects (including silver front bumper paint that all peeled off within five years). The cars' records in service also contrasted dramatically; the Taurus's lower purchase price (as a used car with similar mileage) was totally offset within a few years by higher repair costs.The thing that really puts an exclamation point on the contrast between the two cars is just how much better the Taurus was than its Fox-based predecessors.
  • Art Vandelay I am sure somewhere, somebody is saddened by this.
  • Dukeisduke It's becoming the norm for cats to be moved out of state for sale, and even out of the country. The thieves are looking for the easiest places to get rid of them, as laws tighten down in some places. Here in Texas, catalytic converter theft became a felony last September 1, so the stakes are going up.A couple months back, an off-duty Harris County (Houston) sheriff's deputy leaving a grocery store was murdered in the parking lot by a thief that was in the process of stealing the cat from his truck. As far as I know, they're still looking for the suspect, who would be charged with capital murder, and subject to the death penalty.
  • Dukeisduke Here's a real horror story: A friend of mine that's a commercial wallpaper installer owned an '09 Tundra, and had his cat stolen while he was working on a job in Dallas. He would normally have driven his work truck (an '03 Silverado with a zillion miles on it, and one engine replacement), but it was out of commission that day.At the end of the day when he got in the truck and started it, he noticed the noise, *and* saw smoke and flames. The thief had somehow cut or nicked the fuel line, causing gas to spray out. The truck burned to the ground in just a few minutes.He replaced it with a '19 Tundra, and the dealer installed a steel plate attached to the frame rails below the cats, and it's riveted (or maybe security bolts?) to the rails (I only saw it after dark, so I didn't get a really good look). He said the plate cost $750 to install. He says he'll never take the new one to work.