President Biden, like most politicians of both parties, loves to give things away, so it is no surprise that he is considering removing the federal gasoline tax as a way to reduce prices.
The feds tax fuel at 18.4 cents per gallon, with the money used for highway maintenance. Given the country’s transportation needs, it seems extremely shortsighted to stop collecting this money. But it will be no surprise if the president orders such a tax holiday so that the administration looks like it’s “doing something” about fuel prices that are around $4.47 a gallon locally and averaging $5.00 or more across the country.
If the president really wants to do something, first he ought to stop insulting fuel companies. He recently accused them of milking their oil refineries for high profit margins and said they should be expanding production.
There’s no doubt oil companies are making more money now. Their product is very much in demand. But critics should remember the depths of the covid-19 pandemic just two years ago, when unleaded gasoline stayed below $2 per gallon for most of 2020. It was great for drivers, but the oil industry had to be hurting.
Another thing he could do is acknowledge his error on canceling the Keystone XL pipeline, which would send Canadian oil to U.S. refineries, and get that going again. Every little bit helps.
But at least three important issues are out of the president’s control.
First is the public itself. If we want lower gas prices, we have to cut back on our driving, even just a little bit. It’s hard to do, especially for business vehicles, but less buying eventually will increase supply, which then will reduce the cost.
There’s also Russia. Western nations are right to stop buying Russian oil. The success of this strategy has surprised many political observers. But for the time being, one less country selling oil means increased demand and higher prices elsewhere. We may not be at the peak yet.
But the least discussed factor in rising prices is that a lot of U.S. oil refineries have shut down over the past 20 years. The Washington Post reported that five of them have shut down in the last two years alone, removing 1 million barrels of fuel per day from the market and reducing America’s refining capacity by 5%.
The Post said refinery owners are resisting upgrades to their equipment, partly because they’re so expensive and partly because the country, along with the Biden administration, is in the early steps of moving away from fossil fuels. Why invest in a refinery if you don’t know for sure how long the property will be useful?
Chevron’s CEO, in fact, recently predicted that there will never be another oil refinery built in the United States. A new one would costs billions of dollars, could take a decade or longer to finish — and again, who can say with certainty how much gasoline drivers will be using in the 2030s and beyond?
The Post noted that the last major refinery to open was the Marathon facility in Garyville, La., along the Mississippi River in St. John the Baptist Parish. That was in 1977, 45 years ago, and since then, more than half of the refineries in the country have closed.
Another sign that investors are questioning the value of refineries is the fact that a large one in Houston is for sale — but has no offers. If it doesn’t sell, the company that owns it plans to close it by the end of 2023.
Biden does have other options. He could use emergency powers to restrict the export of fuel products or try to force companies to restart closed refineries. He accuses oil executives of greedy manipulation of prices, but the truth is far less sensational. America’s oil refineries are running at full capacity, but they can’t keep up with the demand for gasoline. That’s the recipe for $5-per-gallon unleaded.