As experts anticipate a significant rise in oil prices, with forecasts suggesting the barrel of oil could reach $100 this year, Californians are bracing for an all-too-familiar pain at the pump. According to industry analysts, this increase in gas prices is due to global tensions, purposeful production cuts, and political decisions that have made California reliant on foreign oil. Californians are more dependent than ever on the whims of foreign nations and their conflicts.
J.P. Morgan Global Commodities Research pointed to Russia's decision to cut oil output as a primary catalyst, which mirrors the decision by some of California's largest foreign oil providers, the OPEC+ cartel.
Russia is looking to reduce production from 9.5 million barrels a day in late February to a target of 9 million barrels by the end of June. This move is projected to increase the price of crude oil to $100 a barrel by September, and California prices may hover around $6 a gallon. Brent oil is around $85 a barrel, expected to rise as other oil suppliers compensate for the shortfall.
Biden's oil policy offers little help. The president's strategy to withdraw 235 million barrels from the nation's Strategic Petroleum Reserve (SPR) before the 2022 mid-term elections to stabilize oil and gasoline prices has depleted the reserve. This action has limited the administration's leverage to counterbalance Russian and OPEC+ production cuts, adding to the price pressure.
In California, there is a smorgasbord of laws and policies that are killing the in-state oil industry and their nearly 300,000-strong work force. Bills passed over the past couple years include AB 1057 (Limon-D) and AB 1167 (W. Carrillo-D), both on “bonding,” and SB 1137, which shuts down a high percentage of oil production in the state via an unscientific, arbitrary 3,200-foot setback from oil wells.
And this year, lawmakers have introduced a slew of bills to shut the industry down, including AB 1866 (Hart-D), AB 2617 (Bryan-D), AB 3136 (Reyes-D), AB 3155 (Friedman-D), AB 3233 (Addis-D), SB 1036 (Limon), and SB 1497 (Menjivar-D). All these bills collectively are geared toward shutting down oil production in California.
Add the international tensions and operational disruptions. Ukraine's assaults on Russian refineries have reduced about 14% of Russia's refining capacity, prompting warnings of a potential 15-cent hike per gallon in U.S. gasoline prices. Meanwhile, Mexico has decided to scale back oil exports.
These factors, combined with the increasing tension in the Middle East, create a grim picture for California consumers. Californians will soon confront the harsh realities of an energy landscape fraught with uncertainty and higher gas prices.
For more information, contact Sean Wallentine.