OPEC Agrees to Hike Oil Production Amid Soaring Gas Prices

The price of gas is enough to make most motorists weep.

According to AAA, the current price of a gallon of regular gas in the Chicago Metro area is now $5.56, up from $3.37 one year ago. The price of premium is well over $6.00.

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At least part of that increase can be attributed to the supply disruption caused by Russia’s invasion of Ukraine and the subsequent sanctions on Russia’s energy industry.

But according to Jim Watson, executive director of the Illinois Petroleum Council, while the war in Ukraine is a factor, he also believes decisions made by the Biden administration have also sent prices higher.

“Why is the price of a barrel of oil high? Well, there’s lots of factors, yes, the war in Ukraine has had an impact, but I would also argue that public policy matters,” said Watson. “What’s the first thing this new administration did when they came in? They started sending signals. First day, kill the Keystone Pipeline. Second day, we’re going to make it harder for you to get to navigate the bureaucracy to get permits for anything. Third thing, we’re not going to let you drill on public land. So all those things sent a message to industry.”

Ultimately, the price of gas is largely determined by the underlying price of oil. And since the end of November, benchmark crude oil prices have risen roughly 70% and now stand at around $117.

But there may be at least a glimmer of hope for lower prices in the months ahead with the announcement Wednesday that OPEC and its oil producing allies, including Russia, have agreed to increase production by 648,000 barrels per day starting in July.

Joe Schwieterman, a professor in the Department of Public Policy at DePaul University says that while Biden administration policies may not have been favorable to the petroleum producers, they are not the main reason for soaring gas prices.

“I would say it’s a contributing factor, but it’s a secondary factor,” said Schwieterman. “Essentially we’re competing in a world market for oil and the U. S. Decision not to approve new drilling, new pipelines, things like that, slows down the rate of growth of the U. S. Oil production, but it hasn’t crippled the industry.”

“You’ve got the Ukraine war, we have this overheating economy, where retail sales and travel demand is extremely strong. So you put a tight global market with a stronger economy and you get rising fuel prices,” said Schwieterman.

But with the current sky-high prices, he says oil producers will naturally choose to producer more.

“I do think there’s massive incentives for producers to step up production,” said Schwieterman.  “The high price signals to every country in the world that there’s enormous profits to be made by increasing oil supply.”

And as that supply increases, the price of oil – and gas at the pump – should eventually come down.

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