Up, Up And Away – Energy Prices Continue To Soar

The Henry Hub index price for U.S. natural gas dipped below $6.50 per Mmbtu on Monday, leading to some optimism for a little price relief for manufacturers of fertilizers, plastics and chemicals. But that optimism faded fast as the price shot back above $7.00 later in the week on the back of diminishing domestic storage levels.

Crude oil prices followed a similar curve for the week, with the price for a barrel of West Texas Intermediate falling below $96 on Monday, then storming back to over $105 in Friday trading before closing just below that level. Russian supply continues to suffer a drop by a thousand cuts resulting from Western sanctions, rendering the global oil markets still under-supplied despite the multi-million barrel drawdowns of strategic reserves in the U.S. and other countries.

Not surprisingly, gasoline prices at the pump have also begun to rise again. AAA reports that, after a mid-April drop to near $4.00, the average U.S. national price for a gallon of regular unleaded as of May 1 was back up $4.19. Barring a sharp reduction in crude prices, U.S. consumers can expect gas prices to continue to rise as refiners switch over to more costly summer blends of gasoline and the summer driving season approaches.

So, what are politicians in Washington, DC doing about it? This opening paragraph from Politico’s Morning Energy report for April 29 says it all:

“GAS PRICE WHISPERS: Democrats are saying the quiet part out loud — their scramble to contain the political fallout from high gasoline prices is intended to persuade voters, rather than actually bring down costs at the pump, since none of their ideas would likely do much to affect the marketplace.”

So, we see Washington Democrats working to be seen by potential voters as “doing something” to address high gas prices, always the most dangerous and counterproductive motivation for any politician. They admit the “something” they’re doing won’t have any real positive impact on the problem – high and still-rising energy prices – but hope to persuade voters that they mean well, and thus deserve their votes in the midterm elections in November.

Politico quotes House Speaker Nancy Pelosi as saying “Public sentiment means everything” during her joint press conference with Senate Majority Leader Chuck Schumer held Thursday. While that is true as a political motivation, it could not be more beside the point when it comes to how much consumers must pay at the pump.

The “something” that Pelosi and Schumer announced during their presser is legislation that supposedly would beef up the powers of the Federal Trade Commission to investigate so-called “price gouging” by refiners. Such allegations are the standard political canard Washington Democrats consistently default to throwing out whenever gas prices go up during an election year. This has been going on for at least half a century now, and such allegations have never borne any fruit in terms of actual prosecutions of anyone in all that time. They won’t this time, either.

In an email, Anne Bradbury, CEO of the American Exploration and Production Council, noted the futility of this game-playing. “Using the power of the FTC to undertake political investigations of American energy companies will not lower gas prices by a penny. Energy prices are determined by supply and demand, not false accusations of “price gouging” motivated by the upcoming election instead of the facts,” she said.

While all this political gamesmanship was dominating the discussion in the nation’s capital, the U.S. Energy Information Administration (EIA) reported that U.S. oil production fell in February to about 11.3 million barrels per day, down by almost 4% from the 11.8 million barrels per day produced in November.

Dan Kish, a senior fellow at the D.C.-based Institute for Energy Research told the Daily Caller that he “was a little bit shocked when I first saw the numbers. It tells me that President Biden is going to have to work more like the devil in order to increase production.”

One consistent reality about oil and gas markets is that the best cure for higher oil, gasoline, and natural gas prices is more production on the market. The Biden administration has made no bones about its efforts to hamstring the domestic oil and gas industry, and those efforts have effectively helped to mute the supply response we would normally see in a time of high commodity prices, such as we have today.

No amount of political demagoguery from congressional Democratic leadership is going to change any of that. Whether it will result in some political gain for Pelosi, Schumer and their colleagues running in November remains to be seen. But voters should be careful about rewarding this kind of behavior, since doing so will only encourage more of it in the future.