Who Actually Controls Gas Prices? | Climate Town

Well, well, well. Gas prices are high again.

That's right, the price of gas is higher than it used to be, and we all know the reason why.

There's one man who gets to set the global price of gasoline, and that guy is the President of the United States. Thanks a lot, Mr President!

Hey, sorry about that guy, he's just mad about high gas prices and has a deep misunderstanding of what causes them to happen. And he's not alone!

Whether it's the media blaming Obama No, he's been nothing but bad gasoline prices nearly doubling since president Obama took office or Trump Prepare to see some higher gas prices President Trump driving up the price on crude oil Or just a bunch of grown-*ss men who developed an interest in arts and crafts, it really seems like people have no idea how gas prices work This is all on Joe Biden Then it occurred to me that I didn't know how gas prices worked either until I took a literal class on it, so now I'm here to explain it so sticker guys and talking heads don't think the American president has some sort of Price Is Right wheel in his office that he spins every morning to determine how much gas should cost.

Hi, I'm Rollie Williams, a sort of gas-station Ryan Seacrest and a climate science and policy master's degree recipient, and this is how gas prices work.

Welcome to Climate Town.

As you might expect, gasoline is not just some kind of mysterious juice that comes out of the end of an enchanted snake.

It's a trillion dollar industry. There's some f*cking paperwork involved.

In fact, there's a whole government agency called the Energy Information Administration that tracks exactly what contributes to the price of gasoline, and there's basically four factors.

And not to spoil anything for you, but how much America's president wants gas to cost is not one of them. Let's give it a look-see, Family Feud style!

In fourth place contributing to about fourteen percent of the price of gasoline is distribution and marketing. This includes the price you pay to get gas from the refinery to the gas station, paying the people at the filling station, and advertising the incredible one tenth of a cent discount you're getting on every gallon of gas.

Fun fact: filling stations have one of the worst profit margins of any industry in the US, making an average profit of just five to seven cents per gallon of gas.

These guys don't make their money on gas. Gas is just to get people in the door where they can make their real profits selling Funyuns and Big Gulps.

In third place with another fourteen percent of the price of gas is the cost of turning crude oil into sweet sweet car juice, baby! Which is fairly labor intensive and can also cost more depending on state regulations and corporate requirements.

Again, the price of refining is fairly stable, so the only way to cut costs here is by appealing to the notoriously philanthropic nature of companies like ExxonMobil and BP and Shell.

I'm being sarcastic -- they love money. Those costs aren't coming down.

In second place, making up about sixteen percent of the price of gasoline are federal and state taxes and fees. That's the extra cost the federal and state government adds to gasoline to help pay for things like roads and bridges.

And if you're thinking, "hey, aren't America's roads and bridges absolutely falling apart?", that might have something to do with the fact that the federal gas tax hasn't been raised since 1993.

Now, state taxes are a contributing factor to variability across the US.

California has higher gas prices because their state tax is one of the highest in the nation, plus they tack on some extra fees to try to account for the very real pollution that driving around creates.

Which, you know, seems like a good thing to try to account for.

And, not for nothing, but the federal gasoline tax in European countries like Germany, the UK, and France just the tax is $2.80 a gallon! Which makes America's 18.4 cents a gallon or even California's 51.1 cents a gallon feel kinda low in comparison.

So they're not what's causing spikes or dips for the pinch at the pump.

the pinch at the pump the pinch at the pump the pinch at the pumps And in first place with a commanding ten-year average of 56 percent of the price of gasoline is...

Oil, baby! That's right we're talking Texas tea!

I'm talking about that rock gravy, black gold, tank toppin' spank juice, pipeline piss, the old french kevin, the old hot chocolate.. for cars.

Any way you slice it, the price of gasoline is basically just the global price of oil, plus a handful of add-ons to get that oil to you. And if you're still not convinced, you skeptical son of a b*tch, it's time to take a trip to Chart Town.

Here we go, this is the price of crude oil, and this is the price of gasoline.

And just for reference, here's a chart of the gas price versus tax, here's the gas price versus refinery costs, and here's the gas price versus distribution and marketing. Now which one of these things looks like it's got the most impact on daily gas prices?

So, since price volatility of gasoline is almost exclusively due to price volatility of oil, maybe we should talk about how oil prices work. Now, in America, we do drill and refine a lot of our own oil but since every man, woman, and child drives around here And under-investing in public transportation is basically a national pastime, we're forced to import about half the oil we use from other countries, but you know what, I'm sure that's not a lot. Holy hell, that's nine million barrels of oil per year? Wait, that's per month?!

Wait, that's per day?!?!1? And please don't let that "wait that's per blank" thing undermine your confidence in me, I actually wrote that into the script.

I just wanted to emphasize that it's nine million barrels of oil per day, and at 42 gallons a barrel, America imports 378 million gallons of oil from other countries every day which, to me, seemed like a lot. So, whenever a politician says they want America to be more energy independent energy independent energy independent energy independent and then they shoot down laws that promote electric vehicles or minimum fuel standards, it really makes me wonder whether they understand how American energy independence works, because importing millions of barrels of oil from other countries every day doesn't feel real independent to me, especially when those other countries have a lot to say about how global oil markets should work.

And when I say other countries, I really mean the most powerful group of work friends on the planet, OPEC.

*sigh* This lighting is not gonna work. Mark.

Okay, all the way back in 1960, a group of oil-rich countries including Iran, Iraq, Kuwait, Venezuela and Saudi Arabia got together and they formed OPEC, And if you thought the O stands for "oil" you'd be wrong.

I know, I thought that was a layup, too. Probably "oil", "producing"...? and then I don't know, but it's actually the Organization of Petroleum Exporting Countries. And they got together and formed themselves into a literal cartel. And just a quick note about cartels here, we usually only hear about cartels in episodes of NCIS, and it's usually just 'cause some NCIS writer is trying to get out by five that day, and they need a shorthand for "a group of people who's gonna cut you in half hot dog style if you try to touch their cocaine" It's also got a sort of "cast of The OC goes to Mexico" filter like this: Oh man, where are we, Juarez?

But seriously, a cartel is actually pretty similar to a monopoly.

The difference is a monopoly is one entity that controls the sale of something, and a cartel is a group of entities that agrees to lower the supply or raise the price in order to control the sale of something. So, by the early 1970s, OPEC countries had confiscated oil operations from the private companies running them, and giant government-run OPEC oil companies absolutely dominated the global supply of oil.

And when I say dominated, I mean like Lebron James in high school basketball dominated.

Finally, an opportunity to show the elevation, the windmill, the creativity, the extension Uh-oh!

See, in the oil game, there's this thing called reserves, which is an estimate of all the oil in the ground waiting to be drilled up. And as of 2018, OPEC countries were sitting on 79.4% of all the oil estimated to be in the ground.

And that's actually pretty important, because even though America is currently drilling oil as fast as humanly possible, OPEC has a very deep bench. Oh, and one more thing, OPEC recently added a little country called Russia to the cartel, and OPEC, Russia, and a few other countries recently rebranded themselves as OPEC+.

OPEC+ now holds the keys to ninety percent of all the world's proven oil reserves and fifty-five percent of the active oil supply on the global market.

Now, fifty-five percent does not give you unfettered control over all things oil, but it does give you an incredible amount of leverage in the global oil supply.

So while the United States might be the largest single country producer, OPEC+ combines over twenty oil-exporting countries including Saudi Arabia, Iraq, and Russia, and the result is a cartel that truly has global oil by the balls.

Russia. Weird.

I feel like Russia's been in the news lately. Did they have, like, a hockey team that rescued a bunch of Filipino kids from a cave, or... Ah, no, they invaded the sovereign nation of Ukraine, and, also, gas prices went way up, and I wonder if those two things are related, I guess we'll just have to wait and see. They super are.

But just because OPEC controls eighty percent of the world's oil reserves does not mean they get to just name their price. Oil price is based on global supply versus demand.

Demand tends to go up when things are good and people are driving and constructing buildings and doing sweet donuts in the parking lot. And demand tends to go down when things are bad, people are not constructing buildings and carving a sweet donut in the local Barnes & Noble overflow lot is just for special occasions. Now OPEC does not control demand, but they do get to mess with supply by determining how much oil OPEC countries allow into the market, which can seriously affect the price of oil. In fact, one time in 1973, OPEC was pissed at America, they didn't let America have any oil, and it caused a massive spike in prices and cars lined up around the block to get gas No, they did not!

The man down the line-- Eight o'clock, we were supposed to pump at eight o'clock! It was pandemonium, and ask your parents, because apparently they freaked the absolute f*ck out, okay?

It was like the Red Scare and Y2K had a baby. And if you didn't understand any of that sentence, um, how do I put this? Uh, you're probably gonna be the one solving climate change, so thank you so much for your service, and, uh, we're sorry in advance.

And then aft-- after "thank you for your service," and then go ahhhhhhhhhhhhh Yeah, and that's the cut? Yeah AAAAAAAAAAAAAAAAnyway OPEC and the other global oil producers, which includes private American companies, get to control the supply of oil, and based on global demand, a per-barrel oil price is set.

Now it's not identical in every country all over the world, but since oil is a commodity that can be piped or shipped alarmingly quickly anywhere on the planet, it stays relatively consistent across the globe at any given time.

Now remember, gas price volatility is basically just oil price volatility, and oil price volatility happens whenever there are disruptions in the global supply or demand of oil.

For instance, when America invaded Iraq in 2003 and disrupted their ability to get oil, the price of gas went up in America. Global markets knew that a country at war might not be able to supply the same amount of oil, so people wanted to stock up on oil as a precaution, causing the demand to go up, causing the price to go up.

And, yes, this is a gross oversimplification of how it really works.

It's really more of a series of feedback loops that put pressure on the system in different ways, as detailed by Donella Meadows in the book Thinking in Systems, read it if you can.

And speaking of a gross oversimplification of how things work, I now present the past twenty-ish years of the global oil market, but first we gotta take a trip back to Chart Town, baby! Hot crackers!

Oil prices are coming up fast in the early 2000s, it's instability in the Middle East, and the invasion of Iraq reduces OPEC supply, and oh no, here comes Hurricane Katrina, absolutely ham-yammying the oil refineries in the Gulf Coast, global supply goes down!

And what's this, global demand for oil is surging due to the emerging markets in Asia, We've got ourselves a good old-fashioned price increase, friendos!

More global tension from North Korean nuclear testing, Israel and Lebanon at war, and a thousand other problems give oil markets the heebie jeebies, they want to buy that oil!

Demand spikes and oil is a hundred dollars a barrel, $120 a barrel, $140 a barrel, Good Charlotte, that's an expensive barrel! And since every major form of transportation and construction is addicted to oil, every government, business, and individual in the world has no choice but to buy that oil at outrageous prices!

Companies' budgets are stretched razor thin and any little snap could force them into bankruptcy!

But I think things are going to be just fine for the year 2008!

Oh no! The US housing market crashes, and a global recession tips business after business into bankruptcy! Demand for oil plummets and oil prices crash to $32 a barrel! Things! Are! Terrible!

But the world economy is clawing its way back and demand increases then we've got the Arab Spring and the collapse of Libya, taking millions of barrels of oil off the market, supply goes down, you know what that means, the price of that good old French Kevin just went up!

Oh, here comes Russia attacking Ukraine in 2014, supply goes down, prices go up, but wait a minute, what's that sound? It's the fracking boom from the USA and they're fracking the absolute molasses out of North Dakota and the Permian Basin, flooding the market with oil, but as supply goes up and prices go down, a bunch of those US fracking companies go out of business, because fracking isn't profitable when oil is under sixty dollars a barrel! Talk about boom and bust, baybee!

Plus, it turns out there's a whole bunch of other problems with fracking, and now OPEC is playing chicken with US fracking companies and also a million other factors and oh my god, what a ride!

But if I know my stuff, 2020 is gonna be smooth sailing forev-- And then, knock knock, it's a global pandemic and everything shuts down.

People aren't flying, people aren't driving, construction projects stop, and the parking lot donut is placed on the critically endangered list. The world economy stalls, and for the first time ever, the supply and demand of oil was so utterly out of whack that the price of oil went negative for a day.

But even though oil prices went back into the positive the next day, prices were still so crazy low for gasoline that some places were selling it for 85 cents a gallon.

What is this, 1993-- Seriously though, 2020 looked like bad news for oil companies.

But they stopped drilling, they got over ten billion dollars in government bailouts, and one other thing... Was it they, like, used the money to keep their employees on the payroll? There's, uh-- oh no, I'm sorry, it was opposite of that, they actually fired a hundred thousand employees.

But don't worry, oil companies in 2020 had a better year than they did in 2016.

So as 2021 rolled around and a shaky recovery started, oil companies had a choice: they could choose to invest that money in drilling, hire back the people they laid off, and increase supply or... they could not hire those people back, not drill, and restrict supply, forcing oil prices way up, and which one of those things do you think oil companies did? American oil companies did stock buybacks, executive bonuses, and purposely didn't rehire their workforce as a way to maximize profits, and of course they did, they're oil companies! This is almost too dumb to say, but oil companies like when oil prices are high. They sell oil! For money!

And since drilling operations slowed down as a result of the pandemic, they now get to enjoy massive oil profits as they slowly ramp drilling back up.

And if you don't believe me, just ask oil companies.

Would Pioneer, in that scenario, potentially increase production to help make up any potential shortfall? No, Pioneer will stay with our plan. We announced a capex plan. As I said, regardless of whether it's $150 oil, $200 oil or $100 oil, we're not going to change our growth plans.

So if the president phoned you up, Scott, and said, "you know what, we need some more oil," what are you going to say to him? I'll tell him we have a pact with ou-- it's all about the shareholders. Our shareholders own this company, uh, they want a return of cash.

Weird stuff! And I mean, it's especially weird considering they'll say all that stuff, and then they'll immediately run onto Fox News and straight up lie to whoever will listen in order to perpetuate this myth that Biden has some kind of magic button that controls oil prices. But this is all because of the absolute war that the Joe Biden administration has begun to wage on the oil and gas industry Biden's closure of pipelines because of shutting down leases and things like that We're not going to change our growth plans Eco-freaks and far left anti-west academics are making him do whatever they want Because I wanna have Reese's!

Don't get me wrong, Biden is a real wet sandwich of a president, and there's a lot of stuff to attack him about, but oil prices are not one of them And then we go to win-- you know, cars with windmills in their back seats.

Just a bunch of rascals selling their tank-toppin' spank juice.

What could that guy possibly think we're talking about.

Wow, I wanna know. We should track him down.

But you don't actually have to know what tank-toppin' spank juice is to know that gas prices haven't really gone back down to pre-pandemic levels, and that's because the globe's oil suppliers are perfectly fine prioritizing short-term profit over actually increasing supply. Oh, they'll pretend that they're being held down by the man and all these regulations, but that's actually a lie.

I made a whole video about this, and it turned out pretty good, so you should consider watching it.

But the tl;dr is that the big dogs like BP, Chevron, ExxonMobil, and Shell are posting record high profits, but spending record low amounts actually drilling and reinvesting in their company. Couple artificially low supply with supply chain issues and a double dose of inflation, and gas prices are just cruising up.

And then Russia started threatening Ukraine, and even though they pinky-promised that they weren't preparing for some kind of war, oil commodity markets kind of freaked out, because it sure looked like they were preparing for some kind of war.

They started buying up oil, meaning demand went up, meaning price went up, meaning gas prices shot through the roof. And it turned out, oh man, there was a second roof above that roof, and we discovered that when Russia actually invaded Ukraine, and gas prices shot through that roof as well. Global supply shrinks because, you know, war, plus international sanctions against Russia, plus Russia retaliates by withholding exports, plus even more war-related supply problems, so unless you're watching this video in the distant future, that's pretty much where we are today.

So the time has come: who actually controls gas prices?

Nobody! And also, kind of everybody at the same tim-- "it's complicated" is the point that I'm making here.

Look, I just blitzed through twenty years of oil history, and you might have noticed the entire world is addicted to oil And the fact that seventy plus countries export oil, and every country uses oil, means that no individual, no matter how powerful, can just sort of step in and change gas prices.

Now, I'm not saying nobody can influence gas prices.

OPEC+ and the world's oil majors make their living trying to influence oil and gas prices.

But for all the influence Lebron James has over a game of basketball, he doesn't get to actually choose who wins or loses. Remember, billions of people are using oil every day, so even though presidents and world leaders have some minor tools available to them, there's no guarantee what the result of those tools is gonna be.

Pandemic bailouts were intended to keep gas prices down, but they resulted in record high profits for oil companies and record high gas prices. The invasion of Iraq was, at least according to our own generals To secure Iraq's oil fields but prices spiked anyway. The oil market is a complex system, and complex systems by their very nature are impossible to predict.

But it's not hard to see how much oil companies benefit from the whole globe being completely addicted to fossil fuels. So, the next time you pull up to the gas pump and prices are high, which let's face it, it's probably right now, just ask yourself one question: who actually benefits from high gas prices?

Is it the companies that sell gas and make a big profit off high prices, or just the most recent winner of the Tostitos US Presidential Election? Because as unfortunate as it is, global oil prices, and gas prices by extension, are almost completely governed by global demand, plus whatever global suppliers think they can get away with, which, as it turns out, is quite a lot.

And the only way out of this rigged system is to reduce our dependence on fossil fuels.

The only way to do that is a complete all-system switch to electrification, And of course, before somebody jumps on to tell me that sometimes electricity is made using fossil fuels, I f*ckin' know that, okay? There's more than one problem with the world, I also think electricity should be made using renewable energy, and if you're interested in ways you can get involved, there are a whole bunch of links in the bio to groups focused on greening the power grid and general electrification.

I highly encourage you to join some of these groups, but above all just consider getting more educated about the climate crisis this isn't a video about that, it was just a video about who controls gas prices, and I hope you came away with a conclusion that it's nobody, because the system is too complicated, but it's not a system we should be involved in, so we should move away from it as soon as possible. And that is the end of the video.

Thank you so much for watching Climate Town. I really, really appreciate it.

If you like what you see and you want to support the channel, we have a Patreon page where you can donate, like, five bucks a month, and it just helps us make these videos faster and better.

We also just put out, like, this rap that was a parody of a different Rap from, like, the 80s where this gas company... It's complicated, but I promise if you sign up for the Patreon, it's on there, you can check it out. And if that's not enough incentive, I don't know what is. We also have a Discord server and a very active community of people discussing previous topics we've done episodes on and new topics, and it's all very empowering and cool and I encourage you to check it out if you feel like it, but more than anything, thank you for watching this episode.

I'll see you next time. I have not tried marijuana.

I have never used it at any time.