US gas prices are the highest they’ve been in seven years, and many Americans are looking to president Joe Biden for answers. In recent months Biden has been blamed by some of his Republican opponents for the price hikes, which are also contributing to historically high levels of inflation. But Biden has little to do with the forces causing gas prices to rise, and the White House can only do so much to tame the market.
While Americans have grown accustomed to looking for someone to blame when rising gas prices take a direct hit at their pocket books, Biden has limited influence over the industry, says Patrick De Haan, head of petroleum analysis at GasBuddy, a technology company that analyzes real-time fuel prices. “The president has no control over what US oil companies do. Companies produce at their will to meet market demands.”
Why gas prices are going up
While Americans may be most focused on rising prices at the pumps closest to their homes, oil is a global commodity, and the entire world is still experiencing the after-effects of an event that dramatically reshaped the market.
“The height of the pandemic really set us up for pain at the pump,” says De Haan. A drop in worldwide demand caused US oil prices to plunge to historically low levels last year, which in turned prompted companies to cut production.
The oil market rallied on news of successful covid-19 vaccine trials in the last months of 2020 and demand came roaring back this year as countries began lifting lockdown restrictions. But production hasn’t caught up as quickly as demand, which is why Americans are paying $3.42 on average for gas today compared to $2.11 last year.
Energy traders with an interest in keeping prices high may also play a role in driving up the cost of gas. Options trading in the crude oil market surged last month as investors bet on the US oil benchmark surpassing $100 a barrel.
Biden only has so much control over the market
“The president doesn’t have a whole lot of control over global supply and global demand,” De Haan says. Biden said in a Nov. 10 statement he had directed his National Economic Council to look into ways to reduce energy costs, and asked the Federal Trade Commission to address possible price gouging and market manipulation.
The president has also asked the Organization of the Petroleum Exporting Countries (OPEC) to ramp up oil production, but officials from the group, as well as other oil-producing countries including Russia, have said they won’t speed up production to aid the US.
At the rate that OPEC is producing oil, De Haan expects to see a turning point around January or February of next year, when supply may surpass demand. But he cautions there are lot of factors at play. Labor shortages, for example, have helped drive up the price of commodities across the board this year. “There’s a lot that could change in the next two months,” he said.