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Important Things That Can Be Done In The USA To Reduce Fuel Prices Globally

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According to various online sources, charts, and statistics, oil demand plummeted in 2020 during the pandemic when widespread quarantining caused prices to drop under zero for the very first time in human history, owing to a significant drop in economic output. The trading volume became so narrow during this time, that it dropped down to the negative zone. Following a solid economic rebound after the lockdowns, fuel prices have climbed substantially to almost $100 per barrel. The demand for oil rises in accordance with the economy. Furthermore, escalating international tensions involving Ukraine and Russia, as well as in the Middle East, are fueling supply concerns. This has led to increased inflation and real recovery fears.

Oil Market   

Oil accounts for about 3% of GDP and is one of the world’s most important commodities; byproducts can be found in everything from protective gear, polymers, chemicals, and fertilizers to medicine, clothing, transportation fuel, and even solar energy. A global shift toward sustainable growth may change the pricing elasticity of oil consumption in the future. However, as the energy revolution progresses, it is critical to understand how oil prices and quantity considerations affect fuel prices and, thus, the overall economy.

Increasing Oil Prices

The only common factor in crude oil prices, ironically, appears to be fluctuation and unpredictability. Notwithstanding, it is presumably fair to suggest that three major underlying factors exist:

  1. Oil Demand is Being Driven By Robust Economic Growth

COVID-19 began with a drop in economic growth and oil prices. Exporters were controlling output levels. Furthermore, there was uncertainty about the severity of the economic downturn and how long it would last. These combined forces pushed the price of oil to levels not seen in years. This trying period lasted several months. Following this, the economy unexpectedly improved, increasing the demand for crude oil. To understand this global phenomenon, it’s important to consider the Fuel Chart source: Compare the Market and analyze the factors involved. Therefore, practical steps must be taken to sustain economic growth.

  1. Limited Supply of Oil as a Result of Extended Investment Periods and Conservative Capital Allocation

Production is still unable to meet the rising demand. OPEC has gradually increased oil output, but it has little spare capacity and is likely wary of oversupply in the markets. Aside from extra capacity, the investment cycles in oil supply are extremely long. It can take up to ten years to reach initial production from the time the deposits are proven. Some alternative sources are much faster, but their scale is limited.

  1. The Russia-Ukraine Situation and Tension in the Middle East

Oil market concerns are intensified by geopolitical hostilities between Ukraine and Russia, as well as rising conflict in the Middle East. One can clearly see the outrageous price hike of fuel, and how it affects the global economy. The following are the things that can be done in the United States to reduce fuel prices.

How the USA can reduce fuel prices

The rise in oil prices is noticeable and at the forefront of users’ minds, with commercials proclaiming that fuel now costs around $5 per gallon, and even more than $6 in some areas. With gas prices at all-time highs, the world is already feeling the effects. 

Higher oil prices, on the other hand, are a drag on the economy in ways other than users having less money to spend. The rising cost of fuel, particularly diesel, has an impact on everything transported by truck, subway, or even ship. Following these approaches, the United States can reduce fuel prices.

  1. Implementation of Natural Gas Policy

A more creative approach to lowering gasoline prices is to encourage heavy vehicles to switch from petro-diesel to cleaner natural gas. Certainly, a fuel transformation would save both petroleum and refinery capacity. It will also allow natural gas to become a gateway fuel for more alternative fuels in the future.

A natural gas transformation program would, of course, necessitate the construction of costly new facilities, but with natural gas prices at a 10-year low, such a scheme warrants careful consideration. The primary distinction between natural gas and gasoline is that, due to high transportation costs, natural gas prices are set domestically rather than globally.

  1. Implement a Gas Tax Exemption

A group of Senate Democrats introduced legislation two months ago to establish a federal gas tax holiday that would suspend the tax, which is currently around eighteen cents per gallon, until January 2023. The plan has received little attention since its inception, owing to the fact that the federal gas tax is the primary source of revenue for national highways and bridges. Tax policy experts warn that repealing the federal fuel tax will do little to help consumers.

  1. Sanctions against Venezuela Should Be Lifted

After Russia was barred from supplying oil to the US, the White House proposed a contentious plan to increase Venezuelan oil imports. The Biden administration considered lifting sanctions against Venezuela in order to resume bilateral oil trade, and US representatives met with Venezuelan officials in early March.

According to the WSJ, Venezuelan oil output has been significantly hampered over time by restrictions; at its peak, the country produced upwards of 3 million barrels per day, but fell to approximately 300,000 in 2020 and only recovered to approximately 800,000 barrels per day. The facilities needed to boost output would necessitate billions of dollars in investments and reorganization, which could take months, if not years, to complete.

The United States, Russia, and Saudi Arabia are the three nations that produce the most crude oil. The global oil market is becoming increasingly anxious as a result of fears that Russia’s oil production could be reduced. The price of a barrel of crude oil has recently broken through the $100 threshold and shows no signs of slowing down anytime soon.

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