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FIVE DOLLAR FRENZY – Gas prices in the U.S. reached a nationwide average of nearly $5 a gallon on Friday, according to AAA — a record-high price point that analysts say will likely only get worse the weeks to come as drivers hit the roads for summer vacation and demand continues to far outpace supply.
The national average climbed Friday to $4.99 a gallon, a 61-cent jump since last month and up from roughly $3.00 from this time last year. Prices saw the biggest single-week increase in Michigan, where the average cost per gallon jumped by 41 cents, followed by Delaware, which saw a 37-cent jump, and Maryland and Colorado, up in each state by 36 cents.
High seasonal demand, coupled with a decline in refining capabilities and high inflation rates, are all blamed as contributing factors in the hike.
Testifying before the Senate Finance Committee earlier this week, Treasury Secretary Janet Yellen acknowledged that there is little, if anything, drivers can do to protect themselves from the record-high summer fuel costs.
“Given the global nature of these markets, it’s virtually impossible for us to insulate ourselves from shocks like the ones that are occurring in Russia that move global oil prices,” Yellen told lawmakers.
“During the pandemic, I think that oil producers didn’t anticipate the strength of the recovery, and the fact that oil prices would recover,” she added. “They certainly do have incentives now to increase oil production.”
And while Yellen allowed that the Fed failed to anticipate just how much Russia’s war in Ukraine would upend global markets, she also praised recent actions taken by President Joe Biden to offset high fuel costs — such as his decision in April to order the release of 180 million barrels of oil from the Strategic Petroleum Reserve.
“Energy and gasoline prices, while very high … would be higher without that,” Yellen told lawmakers.
In a new Global Economic Prospects report, the World Bank said most countries are heading for a recession and warned against a potential return to “stagflation,” the 1970s-era term used to describe an economic period of high inflation coupled with slower-than-usual economic growth.
“The risk from stagflation is considerable with potentially destabilizing consequences for low- and middle-income economies,” World Bank President David Malpass said in an op-ed published Friday to accompany the report. There’s a “severe risk of malnutrition and of deepening hunger and even of famine in some areas.”
The World Bank report also calls on policymakers to increase the acceleration to low-carbon energy sources: “Reducing dependency on fossil fuels will require more investment in electricity grids, cleaner energy sources, and greater energy efficiency,” Malpass said. “National policymakers should create climate-smart regulatory frameworks, adjust incentive structures, and strengthen land-use regulations.”
Looking ahead: Yellen also called on lawmakers to do more to offset the high prices, pointing specifically to Biden’s proposed clean energy initiatives. “There’s a lot that Congress can do to ease the cost burdens that households are experiencing,” Yellen told Sen. Mike Crapo (R-ID).
“Investing in clean energy and renewables would reorder the dependence on global oil markets, which are subject to geopolitical risk and could bring down utility bills,” she added.
Few good options on the table: At a White House event earlier this month, Biden said there was little more his administration could do to lessen fuel costs in the short-term, even as he acknowledged that prices are unlikely to fall anytime soon.
“The idea we’re going to be able to, you know, click a switch and bring down the cost of gasoline is not likely in the near term, nor is it with regard to food,” Biden told reporters. Gas prices have more than doubled since Biden took office in January 2021, when the average cost per gallon stood at just $2.39.
According to the most recent data from the Energy Information Administration, gasoline stocks decreased last week by 800,000 barrels to 218.2 million barrels, while gas demand increased from 8.98 million barrels per day to 9.2 million bpd.
“This dynamic between decreased supply and increased demand is contributing to rising prices at the pump,” AAA said in a blog post yesterday. That dynamic “coupled with increasing crude oil prices means that the price of gas will likely remain elevated for the near future.”
“It’s been one kink after another this year, and worst of all, demand doesn’t seem to be responding to the surge in gas prices, meaning there is a high probability that prices could go even higher in the weeks ahead,” Patrick De Haan, the head of petroleum analysis at the gas price site GasBuddy, said yesterday.
“It’s a perfect storm of factors all aligning to create a rare environment of rapid price hikes,” he added.
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FOSSIL FUEL FINANCING AND THE DEMOCRATIC SPLIT: Amos Hochstein, senior adviser for energy security at the State Department, didn’t go out of his way yesterday to emphasize the Biden administration’s support for U.S. financing of European natural gas projects, but he didn’t play it down, either.
Hochstein told the Senate Foreign Relations Committee’s Subcommittee on Europe and Regional Security Cooperation that he would welcome the provision of more financing tools from Congress to support Europe’s effort to get off Russian energy. He spoke particularly within the context of supporting gas supplies and nuclear technology in Eastern Europe.
“Routing — changing around some of the routes [of pipelines] from Central Asia and other places around the east Med could benefit from our support as well,” he said.
Fred Hutchison, president and CEO of LNG Allies, welcomed the administration’s support for more gas infrastructure and its efforts to facilitate more liquefied natural gas exports to Europe.
“We will need financing for additional global gas infrastructure, and it may very well require public funds,” Hutchison told Jeremy.
Hutchison noted, though, that Democrats and the administration are “torn” on the issue, which is driven by its climate change policies and constituent pressures to stay the greenest course.
One note on financing: The Biden administration introduced a new diplomatic policy in December designed to steer “U.S government investment toward clean energy projects” abroad, rather than projects dealing in fossil fuel energy.
The policy did make exemptions for certain projects deemed to serve national security interests, which would seemingly have a blanket application to any project able to displace Russian energy.
EU EMISSIONS TRADING CHANGES FRUSTRATE AIRLINES: Aviation’s global trade association was left in a state of “surprise and concern” after the European Parliament backed stricter emissions accounting for airlines departing Europe.
The amendment to Europe’s Fit for 55 climate change mitigation regime subjects all flights departing the European Economic Area to the bloc’s emissions trading scheme.
IATA said the Parliament’s decision to expand the ETS “extra-territorially to non-EU destinations will threaten the prospects for major global decarbonization efforts.” The economic area includes Iceland, Liechtenstein, and Norway.
Aviation accounts for around 3% of global carbon emissions, according to the EU.
Staying in Europe: Germany’s automotive trades were critical of another of the European Parliament’s climate change-related actions this week, Euractiv reports.
Lawmakers backed requiring new passenger cars and light commercial vehicles to be 100% emissions-free by 2035, effectively banning new petroleum-fueled cars.
“The EU Parliament has today taken a decision against citizens, against the market, against innovation and against modern technologies,” said Hildegard Müller, president of German auto industry association VDA.
NEW BILL TARGETS RUSSIA-CONNECTED BUSINESSES: Sen. Rick Scott and Rep. Michael Waltz introduced companion legislation yesterday that would restrict business relationships between the federal government and entities engaged in business with Russia’s energy sector.
The proposed legislation would “prohibit federal agencies from doing business with any entity that contracts with Putin’s evil regime or his cronies in the Russian natural gas, oil, and coal sector,” according to a summary published by Scott’s office.
The Biden administration and European leaders have imposed sanctions and prioritized measures designed to starve Russia of revenues from its lucrative energy sector, but that has in some cases backfired, and the Europeans continue to buy large volumes of Russian oil and natural gas.
The Rundown
Wall Street Journal Iran’s actions could be fatal blow to reviving nuclear deal, says IAEA chief
Bloomberg Companies’ climate goals in jeopardy from flawed energy credits
Washington Post Sweltering heat to bake Southwest, California before South, Southeast
Politico Texas LNG plant explosion poses challenge to Biden-EU energy supply deal
Calendar
THURSDAY | JUNE 16
3 p.m. 1201 Pennsylvania Ave. Citizens for Responsible Energy Solutions (CRES) will hold a forum examining the SEC climate disclosure rule and role of U.S. plastics in global climate mitigation. A networking reception will follow. Find out more and register here.
