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What drives gas prices?
When gas prices rise, many are quick to blame the current administration.
But that’s just not how things work.
The only thing the government can do to influence gas prices short term is release the strategic petroleum reserve (which is what our main story is about).
Moratoriums on land development and pipeline approvals don’t have much if any bearing on current prices.
Those take years to come into service.
Plus many companies plan for administration changes and just buy more land ahead of the turn.
To give you an idea of the marginal impact of any one project, consider the following:
Plus, once oil is drilled, it needs to go to a refinery to be turned into gasoline before its transport to your location station.
So what drives gas prices?
Supply is pretty constant. But demand can swing around quite a bit.
Let my oil flow
World leaders may not drive often. But they know people hate high gas prices.
So open the floodgates and let the oil flow.
Release the Kraken
A coordinated effort between the US, Japan, India, China, South Korea, and the U.K. aims to crack high oil prices.
We’re not gonna take it
Never have the countries listed above ever worked together on something like this.
They effectively told OPEC+ to take their model and shove it.
The Organization of the Petroleum Exporting Countries (OPEC) and a few other members such as Russia refused to increase supply even as shortages plagued Europe and the West.
China’s cutback on energy production hasn’t helped either.
However, demand remains incredibly high. And OPEC+ doesn’t plan to increase supply until January.
In fact, OPEC+ warned they would cancel plan supply boosts if the reserves were released.
Not everyone is thrilled
Business groups and Republican lawmakers didn’t agree with the release.
They argued the reserve should only be tapped for true supply disruptions. Instead, they want the administration to focus on increasing domestic production.
However, the Energy Department is already obligated by law to sell 260 million barrels by 2027.
Analysts said the actual impact of the release is minimal on commodity prices. What matters more is the posturing and collaboration between some pretty different countries.
The bottom line: Don’t expect gas prices to come down quickly. Once we get past the US holiday season and then the Chinese New Year, we should start to see some relief.
However, in the long-term, oil and gas exploration companies will increase production in the US to make us less reliant on foreign supplies.
That bodes well for ETFs like the XOP.