Filling a gas tank is about to get even more expensive
By Joe Higgins, Quest 4 Quality
How many times a day does the average American drive past a gas station?
It is the only business in the U.S. that advertises its prices with a sign so large you can see them from 50 yards away. They display regular, diesel, and premium gasoline prices for cash and credit. Before you even stop to fill up, you’ve known the price of gas for weeks.
There is no other product in our country that is marketed the way we advertise and sell petrol.
We also feel the pinch of inflation at the gas pump more than just about any other type of commodity. Who knows the price of copper, wood, or silver? But gasoline is a product that nearly every living adult uses. Even if you don’t own a car, you still are beholden to fuel prices if you take a bus, ride in an Uber, or purchase goods that are delivered by trucks.
I know gas seems expensive given its 49 percent increase over the past year, but if I adjust the price of gas in 1982, which averaged $1.35 per gallon, to February 2022, that same gallon of regular would be nearly $3.90. Since the average price of gas in this country is poised to hit $4 gallon sometime this year, I could make the case that we are paying nearly the same for gasoline today as we did in 1982, adjusted for inflation.
But hold on: Given today’s global issues, fuel is about to get a lot more expensive.
Russia has 130,000 troops on the Ukraine border, and no one knows whether or when it might escalate into a full-scale war. Russia is currently the second leading producer of oil, just behind the U.S. An invasion would set off a chain reaction in the oil futures market where a barrel of Brent crude could go from $94.17 today to more than $120 over the next few weeks.
Currently, the Middle East conflict between Saudi Arabia, the world’s third-largest oil producer, and Yemen prevents the production of over 2.8 billion barrels of oil reserves from reaching global markets. Moreover, the bombing of Saudi oil infrastructure by Yemen’s Houthi rebels will eventually impact the supply of oil worldwide. The Saudi Kingdom is responsible for about 11 percent of the planet’s oil production, and any interruption in supply chains would have an oversized impact on gas pricing.
Now here’s an interesting fact: Since 2013, when the U.S. passed Russia as number one in oil, we’ve been producing more than we use. And the question I often get from audiences is, why don’t we use all the oil we make? It seems so simple, right?
But for some reason Americans assume that the federal government has control over oil supplies, and the reality is it does not. It’s companies like ExxonMobil, BP, Chevron, Marathon, and others that control the world’s oil supplies. These corporations can import and export to whichever customer allows them to make the most profit on each transaction.
One of the big misconceptions about the oil business is that we only export oil that Americans don’t need for our own energy needs. But according to a U.S. Energy Information Administration global oil supply report, America exported more oil than it imported in 2020 — about 7.9 million barrels a day in imports vs. 8.6 million barrels a day in exports. The U.S. brings in oil from 80 countries and exports petrol to over 170 nations. Last year Canada was our top customer, followed by Mexico, Russia and Saudi Arabia.
I think you can see the puzzle. With Russia potentially days away from an invasion of Ukraine and the possibility of hefty U.S. sanctions, the supply lines for Russian imports would be severed for the duration of the war. In the case of Saudi Arabia, any terrorist attacks by Yemini rebels on Saudi pipelines would be catastrophic to global supplies.
We live in a complicated world; events that might seem simple on the surface are actually quite complex when you delve into the details. Oil has been the catalyst for wars, recessions, and terrorism, and it is a cyclical boom-or-bust industry. A barrel of the stuff went for $22.30 at the start of the pandemic in March 2020, and just two short years later it could approach $120 a barrel and has the potential to go even higher.
With gasoline already more than $4 a gallon where I live in Washington, we don’t need more shortages or supply chain problems. Let’s hope it doesn’t go any higher.
Be sure to catch Joe’s Economic Update at next month’s Summit 2022 General Session, starting at 8:00 a.m. on Monday, March 7.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.