There are conspiracy theories about what’s causing higher gas prices in the U.S. Have gas prices gone up around the world or are U.S. consumers only paying a higher price in 2022?
How are gas prices determined?
First, we should understand how gas taxes are determined globally. Crude oil prices are the key driver of gas prices. While the OPEC+ bloc plays a significant role in oil prices by virtue of its massive production, eventually, crude oil prices are market-determined.
Then we have the refining margin, which is the money that refiners earn for producing gasoline, diesel, and other byproducts from crude oil. Gas stations also get a commission for selling gas and diesel. Finally, we have taxes, which include both state and federal taxes.
There's pretty much the same rulebook for pricing gas globally. However, gas prices differ across the world due to the difference in taxes. While some countries impose a hefty tax to discourage gas consumption, others have a more generous tax regime.
Have gas prices gone up around the world?
Gas prices have gone up around the world. Crude oil prices have surged and are at their highest level since 2008. Gas prices in most countries are market-linked. This means that gas prices have also gone up along with crude oil prices. Gas prices have even risen in countries where gas prices aren't market-determined but set by the government.
Conspiracy theories have surfaced amid higher gas prices.
There are many conspiracy theories about rising gas prices in the U.S. According to one conspiracy theory, President Joe Biden shut down U.S. oil production. While U.S. oil production fell in 2021 compared to 2020, Biden didn't shut down U.S. oil production.
The administration did cancel oil lease auctions in Alaska and New Mexico but they were due to a lack of interest from the energy industry and court rulings.
Another conspiracy theory says that Biden’s decision to scrap the Keystone Pipeline led to higher gas prices. However, the scrapping hasn’t had an impact on gas prices. First, the pipeline wouldn't have been operational yet. Also, the pipeline has more to do with the country’s energy security rather than gas prices.
Some blame Biden’s green energy pivot for rising gas prices. There's some merit here as the aggressive green energy pivot combined with the administration’s negative stance on fossil fuels might have slowed down investments in the sector.
The U.S. energy industry is spending its cash on dividends and buybacks rather than investing in new wells. Biden is calling upon energy companies like ExxonMobil to increase investments but it remains to be seen if the companies adhere to his call.
Biden isn't to blame for high gas prices.
Biden isn't to blame for high gas prices. However, the administration’s accommodative fiscal policies are contributing to the broader inflation. Also, Biden hasn’t been able to convince OPEC to increase production. To his credit, former President Donald Trump had good relations with the Arab world and was able to influence oil prices at least twice.
U.S. oil production has shifted under Biden.
The Biden administration has pointed out that U.S. oil production in Biden’s first year was higher than the production during Trump’s first year of presidency. Although this is true, it doesn't tell the full picture.
The Trump administration was arguably a lot friendlier towards the oil and gas industry and the U.S. oil production reached a record high in 2019 under his leadership. The country’s oil production fell in 2020 due to the COVID-19 pandemic and then again in 2021 under Biden’s presidency. Under Trump, the U.S. turned into a net energy exporter.
However, the Interior Department approvals to drill oil and gas wells on public lands in 2021 were higher than what the Trump administration issued in its first year. Biden has rightly rued the fact that U.S. energy companies are sitting on thousands of drilling permits at a time when energy production needs to be scaled up.
U.S. gas prices aren't the highest in the world.
U.S. gas prices aren't the highest in the world. Gas prices in Hong Kong are above $11 per gallon, while prices are above $10 per gallon in Norway and Denmark. U.S. gas prices are among the lowest compared to developed countries since the nation’s federal tax rate is quite low.
Consumers globally have seen a spike in gas prices. One can always argue that Biden could perhaps do more to bring down crude oil prices and work closely with the Arab world to increase production. The administration might also need to consider suspending the federal gas tax. Several countries across the world, both developed and developing, have cut taxes on gas to provide relief to consumers.