It’s important to explain how this crisis began. If we do not reverse course, this crisis could get much worse in the months ahead.
In 2021 gasoline averaged $3.01 dollars per gallon according to the Energy Information Administration (EIA), which is part of the Department of Energy.
Crude oil was only 53.6% of the price of gasoline in 2021. Other factors included federal and state taxes (16.4%), distribution and marketing (15.6%), and refining costs and profits (14.4%).
Just before the pandemic, the world was consuming 100 million barrels of oil per day. When the COVID lockdowns began in March 2020, it resulted in steep decline in the global demand for oil.
In response, OPEC and other oil producers, cut oil production by 10 million barrels per day.
According to the EIA, in 2021, global oil production averaged 95.57 million barrels per day and global oil consumption averaged 97.35 million barrels per day. Gas prices went up because production didn’t recover as fast as consumption.
In the first quarter of 2022, as supply was about to catch up with demand, Russia invaded Ukraine.
Before the invasion, Russia exported 2.2 million barrels of oil per day (bpd), and another 1.2 million barrels per day in oil products, to the European Union. The Russian sanctions have lowered Russian oil production from 11.3 million bpd to 10.3 million bpd in May 2022.
In May 2022, the European Union reached an agreement to ban 90% of Russian oil exports to Europe by the end of the year.
President Biden, and the European Union, wants Saudi Arabia and the United Arab Emirates (UAE) to pump all their spare oil capacity to replace Russian oil in Europe. Saudi Arabia is pumping 10 million bpd now and is projected to produce 11 million bpd by the end of the summer.
This week, French President Macron informed President Biden, about a recent conversation that he had with the President of UAE Sheikh Mohammed bin Zayed al-Nahyan (MBZ).
MBZ told Macron that the UAE cannot pump anymore oil right now. He was also very pessimistic that Saudi Arabia could do much within the next six months.
The real problem is that OPEC needs spare oil capacity for the same reason every car needs a spare tire. It is irresponsible to operate without any margin for error.
With rising Chinese demand, and concerns over the supply constraints in the United States, the world might need spare oil capacity in case another crisis unexpectedly emerges.
Attempting to replace Russian oil in Europe, with Saudi Arabia and the UAE, carries serious risks. It is the equivalent of a driver throwing away his spare tire and cancelling his membership at AAA for a year.
I think the best way to sanction Putin is lowering oil prices. It’s no secret that the Russian sanctions have backfired. The sanctions have hurt the American people while paying for Putin’s war.
In May 2022, Russia announced that their current account surplus for the first four months of 2022 was a record-breaking $95.8 billion dollars.
Before the war, the Russian ruble was approximately 80 rubles for every dollar. In March 2022, the ruble peaked 139 rubles per dollar. On June 22, the ruble was 52.3 per dollar. It’s best performance since May 2015.
According to economist Skanda Amarnath, outside of the war in Ukraine, the main problem is under investment in the oil industry, which leads to a lack of supply.
Amarnath believes the federal government could guarantee some degree of price stability by buying oil from the oil companies and placing it in the Strategic Petroleum Reserve. In a recent interview Amarnath described his plan:
“I can’t understate just how important it is to have some kind of downside protection, how valuable that is to the industry because this is a hypercyclical market, hypercyclical business. If you can provide that kind of downside protection and the option to sell to the government in a time of, call it oversupply, a time of oversupply crisis, that’s just incredibly important to be able to make the financial math work in terms of, ‘How am I going to actually get a return on my investment?’”
The Biden administration needs to work with the European Union and China to pressure Ukraine and Russia to end to this war immediately. It is the fastest way to lower gas prices.
The American people have suffered enough.
Ukraine is dependent on the U.S. and E.U. for assistance while Russia is dependent on China. The longer this war goes, the worse it will be for Ukrainians.
Right now, the Russians are winning in Donbas, and we are paying for it.
Robert Zapesochny is a researcher and writer whose work focuses on foreign affairs, national security and presidential history. He has been published in numerous outlets, including The American Spectator, the Washington Times, and The American Conservative. When he's not writing, Robert works for a medical research company in New York. Read Robert Zapesochny's Reports — More Here.
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