Strategic Petroleum Reserve (SPR) - Refiling
The Department of Energy announced (December 16) that it plans to restart the purchasing of oil for the SPR, with an initial purchase of up to 3 million barrels.
This initial purchase is small relative to the amount of oil drawn out from the reserve over the course of 2022. Drawdowns have totaled 211 million barrels (as of December 9), bringing the current SPR level to 382 million barrels. Drawdowns were intended to help increase oil supply and bring down world-wide pricing that drives high consumer prices at the pump.
The reserve has a capacity of 727 million barrels.
OPEC+ Sticks With Production Cut
OPEC+ countries decided (December 4) to stick with an October decision to cut combined oil production by 2M barrels per day through the end of 2023. There apparently had been concern within OPEC membership that Iraq might object to the cuts and push to increase production. Pressure by the United States to drop the cut also did not affect the latest decision.
Analysts believe that the production cut will eventually lead to increased gasoline prices in the US, reversing recent price drops, even though relatively little oil is imported into the US. Gasoline prices are affected by world-wide pricing, not just domestic supply (which is also increasing).
Oil Industry Taxes on Profits Proposal
The Biden Administration made statements (October 31) endorsing the concept of rasing taxes on oil companies if they do not help bring gasoline prices down through increases in production and refining capacity.
Specifically, President Biden suggested that his administration will look at options with the Congress to raise taxes on excess profits and “face other restrictions.” A lack of adequate US refining capacity is a significant problem, in particular, with capacity below pre-pandemic levels. The lack of refining capacity is affecting not only regular gasoline, but also the supply of diesel fuel which is critical for transportation and shipping industries.
These comments come at a time when U.S. oil companies are reporting among their highest quarterly profits ever. For example, ExxonMobil’s Q3 2022 profits were $19.7 billion, its highest level ever, Shell’s totaled $9.5 billion, and Chevron’s totaled $11.2 billion.
While special taxes on the oil industry have been contemplated for some time, and are often brought up when gas prices are high, opponents argue that such taxes could actually drive up prices and discourage investment in new capacity.
Ultimately, however, this issue is generally moot. The Congress currently has slim majorities and these kinds of measures are unlikely to successfully gain enough support to ensure passage.
Federal Gas Tax Holiday Proposal
President Biden announced (June 22nd) that he supports a 3-month suspension (July-September) of current Federal gasoline ($0.18 per gallon) and diesel ($0.24 per gallon) taxes. And, he called on each State to take “similar action” either by temporarily suspending State taxes or “helping consumers in other ways.”
Federal action to suspend taxes requires an act of Congress, and it is not clear that there is a desire among Congressional leadership to take this action. The President is calling for the suspension but has not proposed a specific legislative path forward, at least publicly. And, he is calling for this action not to impact resources of the Highway Trust Fund which supports road/bridge repair, replacement and improvement, and is financed primarily through gas and diesel excise taxes. This complicates how a tax suspension could be implemented.
Four states have so far implemented State gasoline tax holidays this year -- Maryland (through April 18, 2022), Georgia (through May 31, 2022), Connecticut (through June 30, 2022), and New York (starting June 1, 2022 through January 1, 2023). New York's plan temporarily cuts the tax from 33 cents per gallon to 16 cents.
Biden Letter Exchanges with Oil Companies
At least some media outlets were shown a from President Biden that was sent to seven oil companies (Exxon Mobil, Chevron, BP, Shell, Marathon Petroleum, Valero Energy, and Phillips 66) saying that “historically high refinery profit margins being passed directly onto American families are not acceptable,” and that the companies should also take “immediate actions” to increase the supply of gasoline in the market. The President also apparently stated that “all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term” would be taken. The letter was not made public.
The American Petroleum Institute, the key U.S. interest group representing the oil and gas industry, apparently sent a 10-point plan to the Administration (June 14th) that they claim will “restore U.S. energy leadership and help fulfill our great nation’s core promise.” Some of the key actions include:
Designating critical energy infrastructure projects that would receive streamlined review and permitting.
Dismantling supply chain bottlenecks by reducing tariffs on steel from other countries.
End permitting “obstruction” on natural gas.
Drop a proposal by the Security and Exchange Commission on climate disclosures, which they believe would undermine access to capital by oil and gas companies.
Lift restrictions on oil and gas leasing on Federal Lands and offshore drilling.
Gas Price Gouging Legislation
The House of Representatives passed (May 19, 2022) legislation (H.R.7688) intended to address gasoline price gouging by wholesalers or retailers that is “unconscionably excessive,” and when the seller is “exploiting circumstances related to an energy emergency to increase prices unreasonably. The legislation would empower the Federal Trade Commission (FTC) to pursue legal action if instances of price gouging are discovered. The FTC will also be able to issue penalties and can prioritize enforcement efforts on larger gas and oil companies.
All but four Democrats in the House voted for the legislation, and no Republicans voted for it. Critics argue it may not have any impact on prices in the near term, and that it could potentially worsen the supply of fuel in the market. Senate action is unlikely at this time.
EPA Waiver on Ethanol
Higher levels of ethanol used means less gasoline consumed (and therefore a reduced cost) and reduced levels of pollution, though ethanol can produce more ground-level ozone and smog which can be more impactful in the summer months. Up to a 10% ethanol blend is permitted all year, and a 15% blend is generally permitted only from mid-September until the end of May.
Outside of pollution, the key challenges of E15 include the lack of existing infrastructure that can serve this fuel (e.g., separate fuel tanks and pumps at gas stations), as well as the lack of understanding by consumers regarding if their vehicle can use this level of an ethanol blend. Many older cars may not be able to use more than a 10% blend without damaging the vehicle. Regulations in some states may also need to change to permit the fuel’s use, and that could take time.
No Results Found
This website of the U.S. Department of Energy contains information on Federal gasoline and diesel taxes per gallon, and also includes a link to current State gasoline tax levels.
Status: no changes in Federal gasoline taxes are currently under consideration in 2022.