Hold on America, A Barrel of Oil is About to Get a Lot More Expensive

by Joe Higgins

How many times a day does the average American drive past a gas station? It is the only business in the U.S. that advertises its prices with a sign so large you can see them from 50 yards away. They display regular, diesel, and premium gasoline prices for cash and credit. Before you stop to fill up, you have known the price of gas for weeks. There is no other product in our country that is marketed the way we advertise and sell petrol.

Given this approach to pricing, we feel the pinch of inflation at the gas pump more than just about any other type of commodity. Who knows the price of copper, wood, or silver? And gasoline is a product that nearly every living adult consumes; even if you live in New York, you still are responsible for gas if you take a bus or ride in a taxi.

I know that gas seems expensive given its 49% increase over the past year but if I adjust the gas prices in 1982, which averaged $1.35, to February 2022, that same gallon of regular would be nearly $3.90. The average price of gas in this country is poised to hit $4 gallon sometime this year. So, I could make the case that we are paying nearly the same for gasoline today as we did in 1982, if it was inflation-adjusted,

But hold on, given today’s global issues, the gas price is about to get a lot more expensive.

Russia has 130,000 troops on the Ukraine border, and no one knows what or when it might escalate into a full-scale war. Russia today is the second leading producer of oil, just behind the United States. An invasion would set off a chain reaction in the oil futures market where a barrel of Brent crude could go from $94.17 today, to more than $120 over the next few weeks.

Currently, the Middle East war between Saudi Arabia and Yemen prevents the production of over 2.8 billion barrels of oil reserves from reaching global markets. On the other hand, the bombing by Yemen’s Houthi rebels on the oil infrastructure in Saudi Arabia, the world’s third-largest producer of oil, will eventually impact the supply of oil worldwide. The Saudi Kingdom is responsible for about 11% of the world’s supply of oil, and any interruption in supply chains would have an oversized impact on gas pricing.

You might find this surprising, America has been the number one producer of oil since 2013 when we surpassed Russia, and we produce more oil than we use. So, the question I get from audiences is, why don’t we use all the oil we make? It seems so simple, right?

Not so fast, Americans assume for some reason that the U.S. government has control over oil supplies, and the fact is it does not. Companies like Exon, BP, Chevron, Marathon, and others control the world’s oil supplies. These corporations can import and export to whichever customer allows them to make the most profit on each transaction.

One of the big misconceptions about the oil business is that we only export oil that Americans don’t use for our own energy needs. According to the EIA’s global oil supply report, the facts are that in 2020 the U.S exported more oil than it imported. Here are the numbers, in 2020, the U.S. imported about 7.9 million barrels a day while exporting 8.6 million barrels a day. America imports oil from 80 countries and exports petroleum to over 170 countries. Last year Canada was our top importer, followed by Mexico, Russia, and Saudi Arabia.

I think you can see the puzzle; with Russia potentially days away from an invasion of Ukraine and the possibility of hefty U.S. sanctions, the supply lines for Russian imports would be severed for the duration of the war. In the case of Saudi Arabia, any terrorist attacks by Yemini rebels on Saudi pipelines would be catastrophic to global supplies.

We live in a complicated world; events that might seem simple can become quite complex when you delve into the details. Oil has been the catalyst for wars, recessions, and terrorism. This is a boom or bust cyclical industry; in March of 2020, a barrel of oil cost $22.30 at the pandemic’s beginning. Just two short years later, it could approach $120 and has the potential to go even higher.

With gasoline already over $4 at my home in Washington, we don’t need more shortages or supply chain problems. Let’s hope it doesn’t go any higher.