Exploring the Impact of Refining Capacities on Gas Prices
‘Fossil fuel’ production in the United States has seen a notable increase under both the Trump and Biden administrations as discussed previously
Despite this rise in production, gas prices have remained high, primarily due to refining capabilities.
Here, I explore the factors influencing gas prices, the role of refining capacities, and the differences in gas prices between the Trump and Biden administrations.
Additionally, I will examine the strategic petroleum reserve (SPR) levels under each administration and their potential implications.
Under President Trump, the U.S. saw a significant boost in ‘fossil fuel’ production, driven by policies aimed at deregulating the energy sector and promoting domestic energy independence.
This trend has continued under President Biden, despite the administration’s commitment to ‘clean’ energy.
The real bottleneck in the fuel supply chain is not production but refining capabilities. The U.S. refining infrastructure has not kept pace with the increasing crude oil production and has been significantly reduced by the Biden administration.
Refineries convert crude oil into usable products like gasoline, diesel, and jet fuel. Limited refining capacity means that even if crude oil supply is abundant, the production of gasoline and other refined products can still be insufficient to meet demand.
Refineries operate at high capacities, often above 90 percent, which leaves little room for increases in output without significant investments in new refining infrastructure.
Environmental regulations and the complexity of modern refineries further constrain the ability to quickly ramp up refining capacities. As a result, refining bottlenecks have a direct impact on gasoline prices, contributing to their volatility and persistence at higher levels.
During Trump’s administration, gas prices experienced fluctuations but generally remained lower compared to the early years of Biden’s presidency. Several factors contributed to this:
- Global Oil Prices: Trump’s tenure saw lower global oil prices, partly due to the COVID-19 pandemic, which drastically reduced demand.
- Domestic Production: Increased domestic production under Trump’s deregulatory policies helped maintain a steady supply, exerting downward pressure on prices.
- Refining Capacity: Refining capacities remained a limiting factor but were less strained and continued to increase.
Under Biden, gas prices have been higher on average. Contributing factors include:
- Post-Pandemic Demand: As the global economy recovered from the pandemic, demand for oil and gasoline surged, outpacing the recovery in refining capabilities.
- Geopolitical Events: Conflicts and geopolitical tensions, such as the Russia-Ukraine war, have disrupted global oil supply chains, pushing prices higher.
- Refining Constraints: The current administration has increased regulations such that refining capacity is now at its lowest levels since 2014, exacerbating price increases.
Gas prices also vary significantly between states due to factors such as state taxes, environmental regulations, and proximity to refineries. States with higher fuel taxes and stricter environmental standards, like California, tend to have higher gas prices.
Additionally, states closer to major refining hubs benefit from lower transportation costs, leading to cheaper gas prices.
Thus, the president’s ability to directly influence gas prices is limited. While policies promoting domestic production and refining can have long-term impacts, immediate effects are often driven by market forces beyond the president’s control.
The Strategic Petroleum Reserve (SPR) is one tool the president can use to influence prices temporarily by releasing oil to increase supply.
The SPR levels have varied under the Trump and Biden administrations, reflecting different strategies for managing the nation’s emergency oil supply.
- Trump Administration: During President Trump’s tenure, the SPR was maintained at relatively stable levels, with occasional releases for market stabilization or in response to specific disruptions. For instance, there were strategic releases following natural disasters like hurricanes to ensure adequate supply and stabilize prices.
- Biden Administration: The Biden administration has utilized the SPR more actively. In response to significant geopolitical events, particularly the Russia-Ukraine war, and the consequent supply disruptions, the administration released substantial amounts of oil from the SPR to counteract price spikes and address supply shortages.
As of mid-2023, the SPR levels have been reduced significantly, with over 180 million barrels released to mitigate the effects of global supply disruptions and rising prices. While this strategy has provided short-term relief for consumers, it carries potential long-term risks.
The primary purpose of the SPR is to serve as an emergency buffer against significant supply disruptions. With reduced levels, the ability of the SPR to cushion future shocks is diminished.
Although the president’s power to influence gas prices is limited, consider this: if an administration wants to push electric vehicles (EVs), wouldn’t it be strategic to keep gas prices high by reducing refining capacity?
High gas prices can drive consumers toward EVs as operating gasoline-powered vehicles becomes more expensive.
With oil production rising, limiting refining is a clever way to maintain high prices.
But should the government really be undercutting the nation’s energy industry to advance its political goals?
In the end, it’s clear: Let’s refine, baby, refine!
See more here substack.com
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