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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