top of page
  • Writer's pictureCCA Pulse Magazine

Braking the Price of a Gallon | Liam Rosenberg

First, it was $4. Then, it was $5. A few months later, it was up to $6. And now, across Southern California, we have slowly begun the death march to $7. So what is the force behind this price-hiking phenomenon for a gallon of gas?

Surprise, surprise: we haven’t yet exhausted all the oil on Earth. The U.S. Energy Information Administration (EIA) found the United States has an estimated 38.2 billion barrels of crude oil in proved reserves alone. Let’s put that into perspective: the average car fuel tank holds 12 gallons of gas. Roughly every two gallons of oil can create one gallon of motor gasoline, meaning there is at least enough in reserves to supply approximately 37 million refuels.

Considering how sizable this figure is, it may be surprising to learn that the nation only uses a fraction of that. In fact, about a third of all consumed oil originates from foreign partners. When thinking about oil reserves, one’s mind may immediately gravitate to a place like Qatar, Bahrain, or Saudi Arabia, all Middle Eastern countries that have filled their pockets with oil money.

However, one country has inconspicuously occupied a top spot in American oil imports: Russia. Yes, the same country that just last month announced a “special military operation” in Ukraine was internationally panned for its bombing of civilian centers from Kyiv to Donetsk.

Without probing the ongoing conflict, the elevated tension between Moscow and Washington has undoubtedly led to domestic struggles, coupled with sanctions that have crippled the national oil supply. Aside from this, there are several other factors at play.

In "No Supply, All Demand", I explained the supply chain bottleneck caused by the pandemic. The drastic change in the consumer market and labor force caused the American economy to bleed into a monumental amount of emergency funding to account for this loss.

One of the neglected imports in question was gasoline, which faced an extreme reduction in demand due to the countrywide quarantine. As a result, the price of gas wildly varied at any given moment – and then came the supply shock that followed the return to normal operations.

According to a 2020 study conducted by the Oxford Institute for Energy Studies, “the [oil] market flipped from backwardation to deep contango with time spreads reaching levels wider than those during the 2008 global financial crisis”.

The Biden administration’s emphasis on sustainability and environmentally-conscious energy production may also immobilize a growing margin of U.S. oil reserves. That is not to minimize or negate the evident concern posed by climate change, but concerning the national oil supply, this kind of policy reform will only increase reliance on trade.

U.S. Senator Steve Daines (R-Montana) asserted in February that “what’s happening in Russia and Europe is a stark reminder of the need to support American energy development, not hinder it.”

Indeed, this has been the primary counterargument for dissenting Republicans, who have argued that the ongoing oil crisis justifies a restart of the controversial Keystone XL pipeline. Or so says Daines, “Energy security is national security, and a global energy-dominant America is a safer world. Biden must restart the Keystone XL pipeline now.” Is there a happy medium?

Regardless, it harkens back to a time when Americans scrambled for an alternative to “Saddam’s oil” during the Iraq War. Policymakers are on the rocks, troubled by fracking but feeling inundated by the fiscal ramifications of the alternative.

President Vladimir Putin’s advance into Ukraine could not have come at a worse time for the American economy – a strategic move capitalizing on gas prices ballooned by the pandemic and policy changes. But that’s not all.

A 2012 study at Loyola University Maryland that analyzed over three decades of data on consumer sentiment found substantial causation between energy-price changes and consumer confidence. They observed, “a negative relationship between changes in gasoline prices and its impact on consumer sentiment, suggesting that as gasoline prices rise, this negatively impacts consumer sentiment.”

In plain English, the more you pay for your gas, the closer we get to total economic devastation. With this in mind, Putin’s disruption of the oil industry has proved twofold, financial and psychological impacts.

Is the Russian invasion of Ukraine engineered to implode the Western economy? Only time – and your fuel gauge – will tell.

18 views0 comments

Recent Posts

See All
bottom of page