Is Biden to blame for high gasoline prices?

As columnists go, the Washington Post's Marc A. Tiessen has always tilted toward derangement. But his piece from February 24, the day Russia invaded Ukraine, entitled "Biden's war on fossil fuels has strengthened Putin and weakened America," was particularly unhinged.

Thiessen's thesis is that Joe Biden's "war on fossil fuels" enabled Putin to invade with the confidence that "Biden" would be unwilling to sanction Russia's essential oil and gas exports. But for "Biden's" war, sanctions could be imposed, and Russia deterred. This is sheer lunacy. Let me count the ways.

To begin, the reluctance by the West (not specifically or even primarily Biden) to sanction Russian exports has everything to do with Europe's—not America's (I say this with caveats)—dependence on Russian oil and natural gas. Europe gets 40 percent of its gas from Russia, and a quarter of its oil. That's an enormous amount.

By contrast, the U.S. remains a net exporter of both petroleum and gas, and the world's top producer of each.

More generally, and to the point, the world depends on Russian oil, in the sense that Russia is the world's third largest oil producer, is its largest exporter, and world demand presently exceeds world production. That production/demand mismatch, which we'll discuss in detail, is why oil and gasoline prices have surged, including in the U.S. Ultimately oil is traded on the world market, and all production inputs to that market, along with worldwide demand, determines the global price of oil. Those are the caveats I alluded to above.

That, by the way, is why it's pure fallacy to think that America operates in energy isolation with respect to oil, where some imagine that increases in U.S. production translates directly into lower U.S. gasoline prices. The only way American oil production can reduce what Americans pay at the pump is by reducing the global price of oil. In effect, the entire world gets to bid on what we produce, and vice versa. On the other hand, expansion of renewable energy inside the U.S. actually does have the potential to directly reduce energy prices paid by Americans.

Thiessen tells a fairy tale of how Biden "inherited a nation that was an energy superpower" thanks to Donald Trump, and then squandered it away. How, you might wonder, does Thiessen think Trump made America an energy superpower? Here's his entire case:

"During his four years in office, President Donald Trump opened 100 million acres of public land and water, including the Arctic National Wildlife Refuge, to exploration. He withdrew from the Paris climate accord, approved the Keystone XL pipeline between the United States and Canada, and rolled back Obama-era regulations such as the Clean Power Plan that held back domestic exploration and production. Trump’s policy was 'drill, baby drill.' The result? On his watch, the United States supplanted Russia and Saudi Arabia as the world’s largest oil producer."

What an amazing list of absurdities. For example, the Paris Climate Accord is a demand-side framework involving emissions targets and reporting requirements. Exiting it had no effect on energy production at all. Likewise, Keystone XL was a pipeline extension that had yet to be built, and would not have carried any oil until next year at the earliest, even if Biden hadn't canceled it. So Keystone could not have had any bearing at all on current production or prices, which is what Biden always gets blamed for.

As for the Arctic National Wildlife Refuge, no company capable of producing in the Arctic has any interest in drilling in ANWR. That was made abundantly clear after Trump conducted a lease auction toward the end of his administration, with almost no takers, and no serious ones. The only bids came from the Alaska Industrial Development and Export Authority, which bought a few leases, and two tiny Texas companies—Knik Arm Services and Regenerate Alaska—which bought one lease each. AIDEA is not an oil company at all, but an entity of the State of Alaska, and it entered the auction to backstop a market that was thin to the point of being nonexistent. Knik has no ability to produce in the Arctic, and would need to associate with more capable partners. It and Regenerate Alaska were mostly making speculative plays. All the industry big boys stayed away.

Thus, when Biden canceled new ANWR leases half a year later, there'd been essentially no interest. Even if some capable entity were to get serious about producing in ANWR, it would take a decade for any oil to flow. Counting this as a great Trump accomplishment is nothing short of hilarious. But there it is, in Thiessen's silly list. As with Paris and Keystone, none of it has the slightest thing to do with present market conditions.

What else? Well, Thiessen notes that Trump canceled Obama's Clean Power Plan, which as the name suggests was primarily intended to transition our electrical generation facilities away from coal and to reduce carbon emissions in that sector. The plan itself provided emission targets for each state, and they were free to meet those targets however they saw fit. One ironic result had the plan gone forward would have been an increase in the use of natural gas for electricity generation, requiring more, not less gas production. And oil is barely even relevant in this context. It's just laughable to say that the plan, which was never implemented, "held back domestic exploration and production."

So in Thiessen's telling, Trump made America an "energy superpower" through a series of actions that, aside from selling leases generally, did nothing to affect current production or prices. Then Biden came along and screwed it all up. How did Biden do that? Why, by rejoining the Paris accord. By canceling Keystone XL. By suspending ANWR leases. "And he made clear his intention to tax and regulate the fossil fuel industry out of business," Thiessen says.

We've seen that whether in or out, the Paris accord has had no effect on oil production. We've seen that no oil would have been soon flowing in Keystone XL. (When Biden canceled it, just 8 percent of the 1,200 mile pipeline extension had been built.)  We've seen that nobody seriously wants to develop ANWR and that it would take a decade to do so. And guess what: Nobody has taxed and regulated the fossil fuel industry out of business.

Pause and take stock. I have just enumerated the actions of Trump and the actions of Biden as understood by one Marc A. Thiessen. That's it. That's his entire theory of the case.

Blaming Biden for what's happening in energy markets right now is ludicrous. Biden hasn't done anything to diminish oil and gas production. Blaming him for what might be in future years is speculative, and the possibilities go in both directions, depending on your ideological dispositions. One vision of that future involves a climate-friendly decline in fossil fuels balanced by a massive increase in renewables. If that happens, we might just as well want to give Biden credit, including for increased energy independence. Certainly less reliance on fossil fuels would ameliorate all the disadvantages from which Thiessen thinks we're presently suffering.

But regardless, such future imaginings are not what's being argued over right now. Right now Biden is being nonsensically blamed for current high gasoline prices, and weakness vis-à-vis Putin, often by persons who should know better. And he's being blamed for the fact that the world's addiction to fossil fuels hampers our current ability to sanction Russian energy exports, plus for the additional run-up of prices as a consequence of Russia's invasion. All Biden's fault.

Thiessen spouts nonsense throughout: "These policies have backfired — undermining the United States in its confrontation with Russia today. Thanks to Biden’s climate policies, and the record inflation his administration has helped unleash, the price of gasoline has risen from an average of $2.38 a gallon under Trump to $3.53 today — the largest year-over-year price rises in at least 30 years. That leaves little room to absorb the impact of massive oil and gas sanctions on Russia."

Yet as we've seen, Biden's "policies" haven't done anything to cause gasoline prices to soar, and nobody has advanced a coherent economic explanation that shows otherwise. And Thiessen has it exactly backward: high gas prices drive up inflation; high inflation doesn't drive up gas prices. The inflation we're now experiencing has nothing at all to do with Biden's energy policies.

So why are oil, and hence gasoline, prices so high right now? It's actually pretty easy to understand.

The first thing to know is this is a worldwide phenomenon, a fact that Biden's critics always seem to miss. Click on this and the graphs that follow for a larger view.

 

When Covid took off in 2020, worldwide demand for oil collapsed, a consequence of the early lock-downs, persons working from home instead of commuting to the office, airlines not flying, people not traveling generally, and other extraordinary changes in the economy. By summer oil production also collapsed, as the graphs above and below show. Oil producers shut down a lot of their operations because of considerably less demand for their product. This was all a result of the pandemic.

When the economy rebounded with strong growth in 2021, demand for oil rebounded with it, but production consistently lagged.

 

Source: U.S. Energy Information Administration

This is in part due to it being harder to increase production than to reduce it. But it's also because producers have made deliberate decisions to slow-walk their their production increases. This is a strategy employed by companies, not a consequence of anything Biden has done.

When Biden called for increased oil production last year amidst surging prices, OPEC said no thanks, we're going to enjoy our record profits just now. (Saudi Arabia recently said it's going to use its windfall to invest in future production, with emphasis on the word "future.") The same sort of hesitation also occurred in the U.S. An NPR report from a year ago was titled, "Why Wall Street Wants Energy Companies To Pump Less Oil, Not More". This, again, as demand was rising.

"Oil companies are under a lot of pressure to keep their production down," said the NPR piece. "And the call is coming from inside the house: it's oil investors who are pushing for companies to pump less oil."

Historically, oil production in the U.S. has often followed a pattern of spasmodic boom-bust cycles. This time oil companies have been determined to be more disciplined; to not rapidly ramp up production in the face of increasing demand. Investors have also blanched at large infusions of capital into an industry that might be on the verge of long term decline because of climate change and the anticipated transition away from fossil fuels. For all those reasons, the recent preference has been to enjoy today's high prices and to increase supply slowly.

Articulating that industry sentiment to hold back, ConocoPhillips chairman and CEO Ryan Lance said, at an industry conference, "I think the worst thing that could happen right now is U.S. producers start growing rapidly again."

As of March of last year, OPEC and its partners were pumping 780,000 less barrels than three months earlier, despite demand having risen by 30 percent. "The decision to keep production restrained was principally the work of Saudi Arabia and its closest Persian Gulf allies and was a reversal of their position from just a few years ago," said an NYT article in March 2021.

And that's how things went through the entire year. "One huge reason for the supply-demand mismatch is that OPEC+ has taken a very gradual approach to putting barrels back on the market. That's intended to keep prices high, increasing revenues for oil-producing countries," NPR reported last July.

"Meanwhile," NPR continued, "U.S. producers have also been pumping less than expected as they focus instead on making money for investors." NPR's report added that "This was a surprise to everyone, as the shale patch is famous for exuberantly producing oil when prices are rising." Not this time.

So over the summer prices were rising, production was lagging, and Biden asked OPEC for more oil. In August, Texas Gov. Greg Abbott tweeted that there was no need to ask for OPEC to produce more; that Texas could get the job done. But Texas didn't get the job done. The state's oil and gas production still hasn't reached pre-pandemic levels.

Abbott said all that was needed was for the federal government to stay out of the way. Which is exactly what it had been doing. Thus we see a pattern of the government getting blamed for business decisions made by companies and cartels.

The production shortfalls continue worldwide. This January, the New York Times headline said: "Oil Producers Aren’t Keeping Up With Demand, Causing Prices to Stay High."

"Oil producers are finding it harder than expected to ramp up output," said the Times report. "Members of the cartel OPEC Plus, which agreed to cut output by about 10 million barrels a day in early 2020, are routinely falling well short of their rising monthly production targets."

The Times quotes Richard Bronze, the head of geopolitics at Energy Aspects, a London-based research firm: "In a lot of places, once output has been reduced, it is not easy to bring it back." Thus the pandemic-caused reduction has been hard to reverse even apart from the eager profit taking that's been happening.

That January 14 Times report reiterates what we've seen for at least a year, as already discussed: "Production in the United States, the world’s largest oil producer, has also been slow to recover from its one-million-barrel-a-day plummet in 2020, as companies and investors are wary of committing money amid climate change concerns and volatile prices. The Energy Information Administration forecasts that U.S. crude output in 2022, while rising, is likely to average half a million barrels a day below 2019 levels."

"This global pattern of lagging production has helped push oil prices to seven-year highs, stoking inflation, which has become a political issue in the United States and elsewhere," said the Times. And that was five weeks before Russia invaded Ukraine, which itself caused already high oil prices to surge by additional tens of dollars.

You can see the same story everywhere you look. Last December Reuters reported that "Numerous OPEC nations have struggled to add to output, while the U.S. shale industry has to deal with investor demands to hold the line on spending."

"The 2021 rebound took suppliers by surprise," Reuters said. "The U.S. shale industry, similarly, has not responded to higher prices as they had done previously, bowing to investor pressure to restrain spending."

Through it all the deranged right keeps blaming Biden for high prices with vague hand-waves at Biden's "policies."

But what are Biden's policies? NBC News described one of them like this:

"During Biden’s first days in office, his Interior Department paused new leases [on federal land] while reviewing the program to decide whether extracting oil and gas from federal lands and waters should continue in the future, as the president seeks to wean the U.S. off fossil fuels. The Interior Department has held a public forum on the issue and said that an interim report on the future of the program would be coming over the summer."

A federal judge blocked that moratorium last June, making it a most ephemeral of "policies." Thus even an action actually (but ever so briefly) taken by Biden had no material effect on production, and anyway new leases don't instantly turn into produced oil. Still, there's an implied logic regarding how Biden's exploring the future role of federal lands during an anticipated transition away from fossil fuels has, by a remarkable sleight of hand, caused current production to fall and current prices to rise, even though those lands remain open!

In fact, Biden issued more public lands leases in his first year than Trump did in his, and even more auctions are scheduled for this year. "After setting a record for the largest offshore lease sale last year in the Gulf of Mexico, the Interior Department plans to auction off oil and gas drilling rights on more than 200,000 acres across Western states by the end of March, followed by 1 million acres in the Cook Inlet, off the coast of Alaska," said the Washington Post in January.

The Post said that "the administration approved more than 3,500 oil and gas drilling permits in its first year, nearly 900 more than the Trump administration did in its first year."

"Last fall," the Post added, "Biden officials put 80 million acres in the Gulf of Mexico up for auction in the largest offshore oil and gas lease sale in U.S. history."

Admittedly, a federal judge invalidated those leases on January 27 of this year, saying the government hadn't adequately considered their cost to the climate. In allowing the sale to go forward, NPR reported, the Biden administration "used an analysis conducted under former President Donald Trump that environmental groups alleged was critically flawed."

While trying but failing to actually demonstrate how the magnificent Trump turned America into an "energy superpower," Thiessen also seems unaware that America becoming a net petroleum exporter, in November 2019, was the culmination of a long, steady trend that began in 2006. In fact, America's export/import ratio improved about as rapidly in 2010-2014 as it did during Trump's time in office.

 

Source: U.S. Energy Information Administration

Such willingness to give Trump unwarranted credit for an "accomplishment" falsely believed to be unprecedented is analogous to how Trump himself claimed credit for the U.S.'s historically low unemployment rate, even though he only got in at the end of a very long decline.

In a dumpster fire of a column, with his enthusiasm to blame all things on Biden, Thiessen misfired multiple times even beyond all his energy inanities.

For example, he complained that "the United States and its NATO allies fail[ed] to kick Moscow out of the SWIFT banking network used by almost all major financial institutions to wire money — which would effectively exclude Russia from the global economy." Thiessen's piece was published on the day of the invasion, and he seems to have assumed that all the sanctions had already been put in place. The SWIFT exclusion did happen in the days that followed, amidst an avalanche of other smothering sanctions that were genuinely unprecedented in their scope and severity. No leader deserves more credit than Biden for making that happen, and plenty of good faith conservative commentators have said so. In fact, the Biden administration began preparations for unifying the West and preparing a response months before the invasion. Both before and after the invasion, Biden's leadership has been preeminent.

Thiessen seemed impressed that "Putin had prepared for this moment by amassing more than $630 billion in reserves of gold and hard currency to ride out any sanctions we impose." Except much of those reserves were held in western banks, and Biden—yes, Biden—moved aggressively to cut off Russia's central bank from dollar transactions, rendering those reserves inaccessible. Western allies piled on by freezing reserves held in their currencies.

As I hope you now understand, the answer to the question in this essay's title is that, no, Biden did not cause, nor is he to blame for, current high gasoline prices. That nobody, certainly not Marc Thiessen, can advance a theory of economics or energy markets showing Biden's culpability makes that clear enough. And as we've seen, the production/demand disparity is a function of difficulties faced by producers and, perhaps even more important, deliberate business decisions they've made to reap high prices and go slow in increasing production. As a consequence, demand has consistently outpaced supply. As the war in Ukraine rages on, the uncertain disposition of Russia's energy exports going forward could add lots of volatility. The EIA (graph, above) forecasts production to finally edge slightly ahead of demand any day now. We'll see about that.

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Update 03/30/22 - Two days after this piece was posted, CNN Business weighed in with more of what I've said here. The March 24 headline was: "Gas prices are high. Oil CEOs reveal why they're not drilling more." From the article: "Fifty-nine percent of oil executives said investor pressure to maintain capital discipline is the primary reason publicly traded oil producers are restraining growth, according to a Federal Reserve Bank of Dallas survey released Wednesday." And: "Today, oil companies are under enormous pressure from Wall Street to return cash to shareholders through dividends and buybacks, instead of investing in badly needed supply. 'Discipline continues to dominate the industry,' an executive from an oilfield services firm told the Dallas Fed in the survey. 'Shareholders and lenders continue to demand a return on capital, and until it becomes unavoidably obvious that high energy prices will sustain, there will be no exploration spending.'" The CNN article said only 6 percent of surveyed oil executives blame government regulation for the production shortfall.

 

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