The current oil market has been very unusual and abnormal throughout this last year. Such abnormality is due to COVID-19 pandemic and its recent variants that have caused confusion not only amongst people, but across financial sectors,including the energy market. Although some may think this problem has solely been happening in the US, energy markets are global, and while the United States is one of the top producers in this area, other outside factors affect the prices of oil.
President Joe Biden was recently asked about the surging prices of oil. “If you take a look at gas prices and you take a look at oil prices, that is a consequence of, thus far, the refusal of Russia or the OPEC nations to pump more oil,” said Biden on November 2 at the United Nations’ COP26 summit. “And we’ll see what happens on that score sooner than later.” OPEC is a group of the 13 African and Middle Eastern countries that export oil. These countries ultimately have the biggest say in how the price of oil varies, and they act simultaneously to set the production levels. However, Russia recently started to make decisions along with OPEC. When asked about surging oil prices, president Biden was at the Glasgow climate change conference, yet he still felt obliged to talk about the price of oil. The reason was because oil is the leading energy source throughout the US. Jaime Mizrahi, a 11th Grade student, says, “The only thing I know is that I put oil in my car every three weeks, and I do not want to keep on paying a heavy price for my gasoline!”The US itself is a big oil producer, accounting for more than twenty percent of the world’s oil output. But what can the US really do about the high prices? Are OPEC and Russia supposed to be held accountable?
The main cause of the high oil prices is the COVID-19 pandemic, as commercial activity has increased, the demand for gasoline has consistently climbed. However, supply has not been able to meet these demands, as delays in production and higher transportation prices have all contributed to the failure of supplying oil. So what do OPEC and Russia have to do with this?
Well, fifty percent of the world’s production of oil comes from these countries. If production would be increased, then oil prices would in turn decrease. But, after cutting production after the pandemic hit, it has been hard for the original production capacity to return to normal. In July of this year, OPEC and Russia came together and announced they would produce 400,000 barrels of oil monthly which is less than what China, Japan, and the US were looking for. After having a conversation with Michael Stiberman, a 11th Grade student at Scheck Hillel, he asked, “Why not just increase production to how it was prior to the pandemic, I mean, the price of gas was very low, so what is stopping them from increasing production again and if they do not want to increase production, why doesn’t the US increase production?” Michael makes a valid point. However, it is not that simple. The environmental promise that Biden made is keeping him from producing more oil. He has campaigned for making the US full of electric vehicles and wants to produce less carbon dioxide, so if he were to increase production again, it would not look very good on his part. In addition, another obstacle the US will face is that drilling is not as easy in the western part of the world as it is for the OPEC countries and Russia. This is why there has been so much pressure on OPEC to drill more; they have oil to spare making it easier for them to increase production. However, in the US it could take several months to increase production capacity. Furthermore, Biden cannot just walk out and boost US oil production. Most of these companies are private, and therefore, it is not a political decision made by the white house members. So the effect Biden will actually have is unknown. If it came to an emergency, the President could release the “Strategic Petroleum Reserve,” but this is if and only if there is an oil shortage threatening the economy.
Truthfully, the only thing to do now, is wait for oil production to come back to its fullest once again to see the price of oil drop.