Today’s Cheaper Gas Is The Calm Before 2023’s Storm

Authored by Thomas McArdle via The Epoch Times,

With some regions of America enjoying gasoline prices below $3 a gallon after a summer that saw the national average exceed $5 for the very first time, it’s tempting to lull oneself into thinking cheap gas will last. In fact, it won’t last for very much longer at all, especially with this administration’s never-ending hostility to the fossil fuel economy that provides over 80 percent of our energy.

Now add to this the troubling warnings from European Union leaders regarding the geopolitical consequences of President Joe Biden’s green fanaticism, specifically the ill-named Inflation Reduction Act he signed in 2022, a thinly disguised environmentalist wish list that reduces global temperatures little if at all.

Last week, EU trade commissioner Valdis Dombrovskis cautioned that the $369 billion bill could send the Euro bloc into the arms of communist China, rendering Beijing’s ongoing economic “overtures and propositions” more attractive. And earlier in December, French President Emmanuel Macron, visiting Washington, actually went so far as to say that the Democrats’ billions of dollars in green energy and electric vehicle subsidies will “fragment the West.” The European Commission says the United States’ massive green spending threatens the EU’s industrial base.

After the disastrous withdrawal from Afghanistan a year and a half ago, in which 13 American service personnel were killed, and the signal to friend and foe alike of U.S. impotency and ineptitude likely enticed Russia’s Vladimir Putin to invade Ukraine, sending a shock through global oil markets, an energy policy that ends up further empowering China would add insult to injury.

GasBuddy, which follows and reports prices at the pump throughout the country, projects that gas prices could rise drastically as early as May. Patrick De Haan, GasBuddy’s chief of petroleum analysis, told CNN, “The national average could breach $4 a gallon as early as May—and that’s something that could last through much of the summer driving season.”

But it could end up being much worse; De Haan warned of a “high level of uncertainty” during 2023. Demand for fuel will rise as the weather warms up, but there are other factors at play. Will oil exporter Russia continue to under-perform in an unpredictable war of aggression against Ukraine? Will recession ravage the West’s economies? Will Saudi Arabia and the rest of OPEC continue to restrict global oil supplies? How damaged will communist China’s economy be after its oppressive clampdowns against a COVID resurgence? And will the U.S. Federal Reserve continue to tighten money, and for how long?

Today’s lower prices at gas stations have come despite the 2 million barrels-per-day cuts in production that OPEC+, led by Saudi Arabia, began implementing in November, a move that was in no small part a reaction to the Biden administration’s ham-handed diplomacy during the summer. But the official OPEC policy hasn’t prevented some oil-producing nations from increasing output. Kazakhstan boosted production by 330,000 barrels per day in November, and Algeria, Bahrain, Gabon, Iraq, Kuwait, Oman, and the United Arab Emirates all either met or exceeded production targets.

Over the last year, Biden has used the Strategic Petroleum Reserve as a political tool, conducting the biggest drawdown ever of the nation’s emergency oil supply, which has now dwindled to 375 million barrels, its lowest level since 1983. Yet it is doubtful tapping into the SPR has contributed much to current lower gas prices since it constitutes such a small portion of the global supply.

In an aerial view, the Strategic Petroleum Reserve storage at the Bryan Mound site is seen in Freeport, Texas, on Oct. 19, 2022. (Brandon Bell/Getty Images)

Senate Energy and Natural Resources Committee ranking Republican John Barrasso of Wyoming and House Energy and Commerce Committee ranking Republican Cathy McMorris Rodgers of the state of Washington, in a letter to Secretary of Energy Jennifer Granholm, charged that “instead of unleashing American energy production, you have depleted our strategic stockpile while failing to establish long-term plans for the optimal size, configuration, maintenance, and operational capabilities of the reserve.” They seemed on solid ground stating that despite “selling more than 245 million barrels since President Biden’s first day in office … gas prices remain high and supply chain shortages continue to plague our economy.”

On top of shutting down plans for the Keystone XL pipeline, the Biden Interior Department actually had to be forced by court order over the summer to hold a lease sale on federal land, after defying congressional direction to do so every quarter. And it has jacked up fees by 50 percent and reduced land available for drilling by 80 percent. Offshore, there have been no lease sales under Biden, compared with eight under Donald Trump and 29 during the eight years of Barack Obama.

The oil refinery business in the United States is staring straight into the eyes of a federal government officially dedicated to its eventual destruction, and considering the unavoidably volatile nature of the industry, it is difficult to persuade American oil refiners to invest the massive amounts of long-term capital needed for a healthy output. The Energy Information Administration in early 2020 reported the highest operating capacity ever, some 19 million barrels per day. But a year ago it had fallen to under 18 million barrels a day, an astonishing loss in less than two years’ time. A larger proportion of the world’s gasoline and diesel fuel is being produced by a smaller number of domestic refineries, a strain on the system that is bound to lead to breakage.

Chevron CEO Mike Wirth in June explained the overall situation to Bloomberg with blunt clarity. “When I began my career, there were more than 250 refineries in the U.S. Today there’s half that number and we’ve seen refineries close around the world.” He pointed out that “building a refinery is a multi-billion dollar investment. It may take a decade … you’re looking at committing capital ten years out that will need decades in which to offer a return to our shareholders.”

And Wirth noted, “We haven’t had a refinery built in the United States since the 1970s,” and today there exists “a policy environment where governments around the world are saying, ‘we don’t want these products to be used in the future.’ And so there really is a dilemma.” Much of the dilemma revolves around the left’s refusal to accept that during the decades of any transition to non-fossil fuel energy, the world still needs lots of oil and natural gas.

Wirth concluded: “My personal view is, there will never be another refinery built in the United States.”

In this environment, imagining prices at the pump staying low in the short months ahead is like investing in a dry well.