Although the US has hardly used Russian oil and gas, the Russia-Ukraine conflict is still a major factor that caused gasoline prices to spike, along with several other reasons.
Why is Russian oil and gas affecting the US?
The majority of Russian oil and gas are transported to Europe and Asia. The key point is to look at oil supply on a global scale, instead of focusing on the US market. The world of goods is a closely linked world and oil is priced through the global market. So what happens in one area of the world can affect another.
Russia is one of the world's largest oil suppliers. For example, in December 2021, Russia exported nearly 8 million barrels of oil and other petroleum products to the global market, including 5 million barrels of crude oil used to produce gasoline and other products.
In fact, Russia's supply to the US is very low, only 90,000 barrels of crude oil per day in December 2021, according to the latest statistics from the US government. In contrast, in 2021, Europe accounted for 60% of Russia's oil exports and China accounted for 20%.
Oil is bought, sold and transported around the world through the global commodity market. Therefore, in that sense, it is not really a matter who is suffering losses due to the lack of oil and gas supply from Russia, because lower supply will affect global prices, causing prices to increase.
For example, if Europe buys less oil from Russia, it will have to replace it with oil from another place - perhaps from the Organization of the Petroleum Exporting Countries OPEC headed by Saudi Arabia. Increased demand for oil from OPEC will increase crude oil prices. Meanwhile, the US is a partner that buys hundreds of millions of oil barrels from OPEC and therefore is affected by price increases, which is obvious.
Why is Russia's supply less?
Initially, the West, including the US, exempted Russian oil and natural gas from the sanctions it had imposed. However, the Biden administration reversed this on March 8, banning imports of Russian oil and other fuels into the US. While the UK said it would gradually phase out Russian oil imports by the end of the year. The EU is in a more difficult position because it is more dependent on Russian oil.
Since the ban was implemented, most of Russia's supplies have not been sold. Partners will avoid dealing because there are many potential risks, such as not completing deals due to sanctions on Russia's banking system, or searching for tankers ready to do port in Russia in the context of maritime danger due to within the war zone.
As a result, the main oil that Russia exports to Europe is being offered for sale at a large discount because no one is buying it. JPMorgan recently estimated that Russia must eliminate more than 4 million barrels of oil per day.
Therefore, investors are essentially pricing oil without having to consider supply from Russia. Once again, if there is less supply, prices will be higher.
Why don't other countries increase sales?
When the COVID-19 pandemic broke out, demand for oil in general in the spring of 2020 was very low due to the global blockade, everyone was at home, no one needed to fill up with gas and go to the office. With reduced demand, oil prices also decreased. There were even times when trading was at a negative price.
It was OPEC+'s turn to cut production to support prices. Since then, they have kept production targets low, only gradually increasing output at a moderate pace, even as demand for oil and gasoline increased earlier than expected.
Notably, Russia is a member of OPEC+, so OPEC+ does not need to rush to rescue. Even months before the Russia-Ukraine war broke out, the group had made it clear that there were no plans to open oil pipelines early.
However, this view of the iron and steel may still be shaky. The Ambassador of the United Arab Emirates (UAE) to Washington told CNN that the country wants to increase oil production and will encourage partners in OPEC+ to do so. But then, on Twitter, the UAE Minister of Energy and Infrastructure announced that the country would follow the OPEC+ agreement and gradually increase production.
The Iranian oil and gas ministry later said its leaders had met and agreed with OPEC+ partners to balance supply and demand to stabilize the market.
Why don't US oil companies increase production?
Russia was the world's second largest oil producer in 2021, producing 9.7 million barrels/day, but the US ranked No. 1 with 10.2 million. US companies do not comply with mandatory OPEC-style production targets. But US oil producers cannot or will not fill the supply gap, even though they can make money due to both high prices and demand.
In addition, a significant part of the cause is the impact of the COVID-19 pandemic. Like many industries during the pandemic, oil producers are struggling to find human resources and a source of specialized equipment. Meanwhile, US oil companies are still trying to get out of the mud from the major oil bankruptcy in 2020, starting a series of bankruptcies. Since then, the stock price of major oil companies has fallen significantly. And as fossil fuel producers, they are always on guard against future environmental policies, as they could impact future oil demand.
All of the above emphasize how oil and gasoline prices are related to geopolitical events, pandemics, mining logistics and more. Therefore, the average US gasoline price increased by over 4.33 USD per gallon on March 11.
In short, in general, all are just simple examples of the law of supply and demand, even though in reality it is not really that simple.
