Oil Prices Are High Partly By Design

It’s understandable that drivers are angry about high gas prices, which are over $5 a gallon in some parts of the country. While the recent U.S. embargo of Russian gasoline boosted our prices, a confluence of other events—such as a resumption of people driving to their jobs every day—have also contributed to high prices.

But while the Biden Administration has insisted that these high prices are solely the result of forces beyond its control, the reality is that it has sought to make it more difficult to produce and transport oil and gas since President Biden took office, and it shows no signs of relenting.

For starters, the Administration has paused the development of new oil and gas leases on federal lands and a court ruling recently nixed the last lease auction for the gulf of Mexico, with the support of the Administration.

It has also signaled that it will soon propose a new rule that will require all public companies to report their direct and indirect contributions to carbon emissions in the environment. The explicit hope is that this would make it easier to pursue new rules that would effectively reduce production of oil and gas.

It has also been working to reduce the ability of producers to ship oil. It stopped the Keystone Pipeline—which was to ship oil from Canada’s tar sands to the U.S.—in President Biden’s first day in office. An existing pipeline in the upper Midwest is being targeted for closure by Michigan Governor Gretchen Whitmer, with the support of the Administration. Last month the Federal Energy Regulatory Commission announced new rules that would make it more difficult for companies to construct new pipelines in the future

The administration has also slowed down efforts to create new platforms for Very Large Crude Carriers, which would increase the industry’s capacity to transport oil as well.

Biden officials insist that none of these efforts can be blamed for reducing oil production today—it takes companies years once they obtain a right to drill before they can bring oil to the market, and the pipeline capacity in the U.S. hasn’t changed since President Biden took office.

However, together these actions send an unambiguous message: this administration has no appetite for more oil and gas production, and it will use the powers at its disposal to stop it whenever possible, regardless of the geopolitical exigencies.

This political and regulatory reality dampens the enthusiasm of investors to put money into new development, even when prices are high like they are today. And a market that fears future production costs will go up will react by pushing current prices higher today.

The irony is that the Biden administration both wants to stop oil companies from producing and blame them for high oil prices. For insistence, White House Press Secretary Jen Psaki’s insistence that oil companies are not availing themselves of their current leases and that high prices are their fault is a clear indication that it makes little sense to expect that it will acquiesce to more production or pipeline construction in the near future.

The Biden Administration recently reached out to Venezuela, Saudi Arabia, and OPEC in a bid to boost global production and help moderate energy prices. It should take steps to boost domestic production as well.