Devin Scillian explains: Why gas prices are so high

Some might find it odd that the guy who drives an electric car was assigned to dig into the way gas prices are determined. But it’s a reminder that all of us, even if you drive an electric car or don’t drive a car at all, pay for higher gasoline prices.

Some might find it odd that the guy who drives an electric car was assigned to dig into the way gas prices are determined. But it’s a reminder that all of us, even if you drive an electric car or don’t drive a car at all, pay for higher gasoline prices.

Gas powered vehicles deliver bread to groceries, t-shirts to Old Navy, and, almost comically, gasoline to gas stations. So when the price of gas hits an all-time high, just about everything gets more expensive right along with it.

Few political footballs get thrown around with the wild abandon of gas prices. Politicians certainly play a role in the oil industry; tax policy and environmental regulations all have an impact along the line. But they tend to be impacts that play out in the longer term.

For example, it’s easy to find complaints over the Biden administration’s shutdown of the plans for the Keystone XL pipeline. But that pipeline wasn’t due to come on-line for years yet, and the original Keystone pipeline continues to run.

Related: AAA: Michigan gas prices down 10 cents from last week, still above $4

Roll along the radio or television spectrum and you’ll hear talk about leases and drilling and damning talk about energy independence.

It’s true; there isn’t nearly as much drilling activity as there was several years ago. The high point for US drilling activity came in 2014 when around 1,600 wells were pumping American oil. Today it’s about a third of that. But that has far less to do with policy and much more to do with the pandemic.

The last two years had an extraordinary impact on driving habits around the world and the price of oil cratered in 2020. Suddenly, there was, to paraphrase Samuel Taylor Coleridge, oil, oil, everywhere and not a drop to sell. 2022 has seen the robust return of gasoline demand, but the oil industry is an aircraft carrier. It doesn’t exactly turn on a dime, and even if it could, the oil companies have very little confidence in their ability to measure demand in the current world climate. (Imagine a massive expenditure of money on new drilling that collides with a return of the next iteration of COVID.)

So, already skittish from the pandemic, big oil watches Russia invade Ukraine and oil prices skyrocket because supply becomes crimped even more. (As for energy independence, we do produce more oil than we import, which speaks to a version of independence, but you may ask if we’re truly independent, why do we import any oil at all? Well, it’s a complicated world that involves many different grades and varieties of crude oil, each of which needs to be paired with specific refining needs.

Weirdly, refineries are often mismatched with the oil nearest them which means added costs of imports and transportation. Oh, and transportation costs are getting pinched in two ways, the price of fuel but also the lack of drivers via the labor pool struggles.)

Now, let’s be clear. It’s hard to sympathize with the world’s oil powers and decision makers. This week, Exxon suggested they’ll be announcing a record quarterly profit on oil and gas.

The cynic in me isn’t sure the oil industry has any incentive at all to bring down the price of oil (ka-ching!).

And, as energy analyst Tom Kloza pointed out to me, it’s very odd that many free-market thinkers and capitalists cede so much respect and power to OPEC, a cartel that runs on decidedly UN-capitalist machinations. (I suppose it’s just a coincidence that OPEC and opaque are near homonyms.)

The United States and Canada aside, the oil business is populated by too many bad actors as Saudi Arabia, Russia, China and Venezuela come quickly to mind. But at the heart of this very labyrinthine business is the same old, same old of supply and demand.

If you can give me an outlook for the pandemic, and then another for when the Russian invasion of Ukraine will end, we can sort this out pretty quickly. Til then, ouch.


About the Author:

Devin Scillian is equally at home on your television, on your bookshelf, and on your stereo. Devin anchors the evening newscasts for Local 4. Additionally, he moderates Flashpoint, Local 4's Sunday morning news program. He is also a best-selling author of children's books, and an award-winning musician and songwriter.