( Alex Brandon / AP Photo )
Timothy Gardner, climate and energy correspondent at Reuters breaks down why the price of oil is so high and what, if anything, the Biden administration can do to fix it while also meeting climate goals.
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Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning, everyone, and happy day before Thanksgiving. Maybe you're already on the road as we keep hearing holiday travel is expected to be back at pre-pandemic levels this year. It's our second pandemic Thanksgiving, but our first vax era Thanksgiving. Everyone is making whatever judgments we're making about togetherness versus risks. Happy day before Thanksgiving. Little good economic news on this Thanksgiving Eve. The weekly new jobless claims number came out this morning and I read it was the lowest single week number in 50 years.
Despite the new rise in COVID cases this month, it doesn't seem to be shutting down the economy very much. That's different from parts of Europe right now. Austria, have you heard this? With its surge being worse than our surge right now, has ordered a lockdown and a national vaccine mandate, not just certain workers, everyone except the medically or religiously exempt, and they are expecting economic losses as well as public health gains from the lockdown, but another thing in this country that is affecting most people is the recent rise in gasoline prices as the holiday has approached.
Yesterday President Biden announced a release of oil from what's called the national petroleum reserve. He acknowledged the tension, that I'm sure many of you are thinking about right away, between his recent climate promises about getting off of fossil fuels and flooding the market with them now to ease the short-term pain.
Biden: It will take time, but before long you should see the price of gas drop where you fill up your tank. In the longer term, we will reduce our reliance on oil as we shift to clean energy.
Brian: President Biden yesterday. Now, before we bring in our first guest to talk seriously about all this, two bits of satire. This first one was sent to me by a friend. I'm not sure of the original source, but if anyone else has seen this going around you can let us know. It says, "Having observed the activities at COP26, I have set an ambitious target to phase out my alcohol consumption within the next 29 years, as part of an impressive plan to improve my health, the program will see me continue to drink as normal for the foreseeable future before reducing consumption in 2051 when I turn 92.
I want to assure friends and family, it will not affect my drinking plans in the short or medium term. It is important not to rush the switch to non-alcoholic beverages. It is not realistic to transition to zero alcohol overnight. This requires a steady phased approach where nothing changes for at least two decades. Indeed, I may need to make alcohol investments, in beer consumption more investments in the short term to make sure no night is worse off. I also intend to bring forward the drinking credits earned from the days I haven't drunk over the past 40 years.
Meaning, the final end date for consumption may actually be 2060." Whoever wrote that, I thought it was hilarious and very on point. I thought I would share it with you. Then there was Steven Colbert last night helping to explain the idea of the strategic petroleum reserve.
Steven Colbert: For those who don't know, these strategic reserve is a series of caverns filled with fossil fuel and strategically located inside Rudy Giuliani's head.
[laughter]
Brian: Thank you, Stephen Colbert. I think you nailed it. With us now, Timothy Gardner, energy and climate reporter for Reuters. Timothy, thanks for some time today. Welcome to WNYC. Happy Thanksgiving.
Timothy: Happy Thanksgiving. Great to be here.
Brian: Did Colbert get that right. Is the strategic petroleum reserve located in Rudy Giuliani's brain?
Timothy Gardner: [laughs] It's a little farther away than that. It's basically a series of caverns that's right, along the Texas and Louisiana coast. It's heavily guarded by patrols and fenced in. I actually went there in 2016, and to give you an idea of how remote it is, one of the security guards told me that despite the fences, they actually have problems from time to time with alligators getting in, and that's because the Marine birds will take the baby alligators from the egg and then drop them once they are squirming too much. Yes, it's a pretty remote location. You can't even see the oil there because it is in these hold caverns that they carved out and filled with 600 million barrels of oil.
Brian: Why do we have these strategic reserves? Whoever came up with them was probably not thinking about a shortage caused by a pandemic.
Timothy: No, indeed they're decades old. The idea came about when Henry Kissinger was secretary of state under Nixon, and it was in response to the Arab oil embargo of the early 70s, '73, '74. It was daily news on television and drivers would line up at the gas stations in some cases for miles. The more people saw that on TV, the more they'd rush out and fill up their tank even if they only needed a gallon of gas and it caused a lot of panic.
Henry Kissinger's idea was to get together a group of oil-consuming nations, now called the International Energy Agency and it's based in Paris, but also to create the strategic petroleum reserve to fill it up. Congress mandated it and it started filling up in 1977, and now has about 600 million barrels which is, we in the US use about 20 million barrels. Under the International++ Energy Agency, the US is required to keep 90 days worth of imports in there.
Brian: We've dipped into this reserve fund before. You talked about creation of it during the 1970s. We've dipped into this reserve fund before during this century, haven't we?
Timothy: Yes. Usually, it's used in response to hurricanes that hit the Gulf coast and the reserve can be used either to loan oil. The government, the department of energy says to oil companies, "Hey, we're going to loan you this oil." They take it up, their companies take it up, and then they have to repay it back with interest at a later date. Or the president can declare that there's an emergency, which has happened in times of war, in the 90s, in the Gulf war, and this century when there was a civil war in Libya.
Brian: You reported that this release of oil is being done in conjunction with other countries, including China. Are other countries experiencing similar gasoline price increases to ours?
Timothy: Well, yes, that's was an unprecedented move by President Biden, yesterday to do this in conjunction with the world's other top oil consumers. That's China and India and Japan and South Korea. That's outside of the IEA that I mentioned, the Paris-based IEA. India and China are associate members of that group, but they're not full members. This is a new relationship of consuming nations, oil-consuming nations banding together to push back against Saudi Arabia and Russia holding back production. Both of those big producers should pump more oil, but they are only doing it slowly as the world recovers from the COVID-19 pandemic.
Brian: Listeners, help us report this story. What are you paying for a gallon of gasoline today compared to a year or two ago? Give us your numbers. I saw one report of a $6 a gallon of gasoline, somewhere in the country, but that made news precisely because it's an outlier. What are you seeing around here in pump your own gas New York or you're not allowed to pump your own gas New Jersey or anywhere else? 212-433-WNYC. 212-433-9692. Help us report this story from your car or anywhere else, and you get a free shot at who you blame, if anyone, and what Biden should do about it if anything while trying to kick fossil fuels at the same time at least in the long run.
212-433-9692. You can also ask any questions you have about the strategic-- I keep stumbling on that word, petroleum. You have questions about this strategic petroleum reserve that the president announced he is tapping or the pandemic oil market generally right now, 212-433-WNYC, 212-433-9692 for Timothy Gardner, energy and environmental reporter for Reuters. You can also tweet your thoughts and your questions @Brian Lehrer.
Tim, Fox business has a headline today that reads, "Oil reserves released by Biden, expected to go primarily to China and India." You just mentioned China and India as participating in a strategic reserves release. Fact-check that for me. Is that real news or fake news? Or maybe it's fake innuendo like the tone of the headline suggests, "Biden is a traitor favoring China and India over hardworking Americans paying too much for gas." The implication, I would say, is disinformation. What about the statement of fact, "Oil reserves released by Biden expected to go primarily to China and India"?
Timothy: Well, I haven't read that story, but the US does export oil to both countries. We should be clear, oil prices are high. They hit the highest in seven years, but they're about $80 a barrel right now for US crude. In 2008, they were up around $145. The real issue here is not only oil prices are high, but inflation is high. Inflation is at 30-year highs on gasoline prices, but also on food prices and also on the price of new cars, which we all know there's a chip shortage. President Biden is trying to control fuel prices from getting too high ahead of 2022 midterm elections, especially as he has razor-thin majorities in both the House and the Senate.
Brian: Declining poll numbers. It was interesting that you included those things in your articles the last few days. How much do you think then that the release of oil from the strategic petroleum reserves is motivated politically as opposed to by pure logical economics?
Timothy: It's a combination of both. Gasoline prices are something that consumers see every day as they drive along the highway. As consumers, as drivers drive around more, as you say, begin to think about vacations, everyone's emerging from the pandemic, and possibly avoiding the bus and the subway. People want to see prices not get too high. The gasoline prices, the president has to do something or it just looks terrible. High inflation was not good for President Jimmy Carter, and certainly, President Biden wants to avoid a situation where prices get out of hand.
Brian: On the China and India angle, in the body of that article it says The White House's Tuesday announcement means the US will seek to accelerate sales abroad in an attempt to counter spiking prices at the gas pump. Is that part real that somehow exporting some of our oil will help bring prices down here?
Timothy: Well, oil prices take place in a global market. The price you see at the gasoline pump is related to global oil prices. As oil markets panelists say that oil markets are fungible. Producers all over the world have different cramps in their supply and so every country that exports has to supply the market. I think the more interesting question with China is at what point is it going to coordinate in this release?
Today there's been news from a state-run China media outlet, the editorial, it says that China has the upper hand. Yes, this coordination is going to help consumers around the world including China, but the United States is asking for China's help. So far, we haven't seen China actually release oil from its reserves. It did so a little bit in September, but they're silent on when exactly this announcement that Biden made yesterday, when China will participate in that.
Brian: One other thought on this thread, is the US a net exporter of oil now? For all, we're knocking Saudi Arabia and Russia for not increasing production. Do we not need their oil anymore anyway?
Timothy: We export millions of barrels of oil, but we're not generally a net exporter. The US, Saudi Arabia, and Russia are all competing to be the world's number one oil exporter at the moment. The US production is not controlled by the government unlike in Saudi Arabia and Russia. The pandemic hurt the economy and the oil price dropped and US oil producers stopped investing or investors stopped investing in oil production, so the US oil production is a little bit lower now, and it's going to take time to recover.
Brian: With Timothy Gardner, Reuters, Energy, and Environment correspondent. Let's hear some of those gasoline prices. Hasani in Brooklyn, you're on WNYC. Hi, Hasani?
Hasani: Hi, good morning, Brian. I am a sustaining member, want to say that first, and I was driving in my Prius from Boston to Martha's Vineyard, and then coming home to Brooklyn. In Boston, I paid $3.79 for gas, and then Vineyard, I paid $3.99 for gas, and Connecticut, I paid $3.35 for gas, and that was from my hybrid.
Brian: A year ago, if we're looking at one year ago prices were really unusually depressed then because people weren't driving, so the price went down. How about from before the pandemic? Do you have enough memory of gasoline prices?
Hasani: Yes, it was about a dollar cheaper. It was great. I wasn't driving that much, so it really didn't have the same type of impact, but I really feel that now it used to be that I'd pay $20 something to fill up my Prius, and now I'm paying $37 to fill my Prius.
Brian: If you have a Prius, then you're probably an environment-conscious person, right?
Hasani: Yes, because I also have a fully electric car too.
Brian: Do you have any mixed feelings as you're personally feeling the pain of higher gasoline prices, but would probably like to see the US kick its dependence on fossil fuels? Do you experience any internal conflict over Biden releasing these petroleum reserves to make it easier?
Hasani: Yes, because I'm also a kid of the 70s. I remember my family in California having to go to the gas station with lines are like a mile around, you can only go based on the number that was on your license plate. I understand the reserves, but I feel like this is a temporary situation. We've seen fluctuations in the past, and so using the reserves in this way gives me great pause. I'm just not exactly sure that if we have a big crisis, if we have a big hurricane, or something else, how are we going to respond to that?
I have great reservations about how we're utilizing this. I don't think it's ever been done before because of prices. Then, again, there must be something else going on because he's doing it in conjunction with other countries. Maybe this is a thing to apply some pressure to OPEC to say that, "You can try to raise these prices, but we're going to push back." I'm not exactly sure what the motivation is and that hasn't been explained us, but I think that that would be helpful information for me. Otherwise, it just seems political more so than anything else.
Brian: Well, let's see if we can get that information. Hasani, thank you for your call. Before we go onto some of the other calls because it's interesting some of the range of gasoline prices we're getting on the phone. Tim, you heard Hassan's question there, right? Is this being done to some degree to place pressure on the OPEC countries to produce more?
Kim: Absolutely. That is part of it. At the beginning of the pandemic, oil demand just tanked, it was very low because nobody was driving anywhere. Saudi Arabia and Russia, this is not just OPEC, this is a group now called OPEC Plus, which includes Russia. They decided to go into a price war and flood the markets with oil. Some listeners might remember that in April of 2020, the price briefly went to negative $50 for a barrel of oil. President Trump at the time, he decided to stop this. He basically told Saudi Arabia that he can't stop a group of Republican senators from passing a law that would basically remove US troops from Saudi Arabia.
At beginning of the pandemic extremely low prices, now that the economy is recovering, the prices have jumped super-fast, gasoline prices highest in seven years. Yes, it's a combination of Biden not wanting to get this out of hand politically, but also he wants to make it look like he is taking action on Saudi Arabia and Russia, which have not been cooperating
Brian: Joyce in North Port on the Island, you're on WNYC. Hi, Joyce.
Joyce: Oh, hi. I'm a long time, second time. I am paying $3.49 and here in Huntington Township full service is required. We can't pump our own gas. Does not make me sad that I can't put my own gas
Brian: You don't want to be out there with the fumes.
Joyce: Yes. When I go to Florida, which maybe I'm going to do this winter, I have to pump my own. I have to not forget how. Jersey Turnpike, I was filling up before I reached the end of the Turnpike.
Brian: Cheaper there.
Joyce: It is. Some places if you charge it you have to pay more. Some places it's either charge or cash, is $3.49. By the way, I buy it at a, I guess it's called a no-brand gas station, but I've never had any problem with my car, with the gas. There are a few other stations around that at that same price. Most are a little bit more.
Brian: Joyce, thank you very much. Listener tweets. It's around $3.29 to $3.49 in Jersey City right now, which is why I was shocked to see $4.99 coming back from the Guggenheim last weekend at a station on 11th near the Lincoln Tunnel. I don't know, maybe that's not surprising. I think they always get you with those stations right before you have to go through the tunnel and you haven't filled up yet. Here's Patrick. Oh, Patrick hung up, no he's back. Let me go right to Patrick, who was in California. Patrick, you're on WNYC. Hello.
Patrick: Hi. No, I'm just back from California, where it makes you pine through the [unintelligible 00:23:55] of New York here. I live in a village up the river as I used to say from the city. Typically, you see $4.59, $4.69 in Beverly Hills, which is where I was. Some places are above $5, particularly if you're around Rodeo Drive. That's the gas stations to the stars. In Crowden this morning, I filled up for $3.49 for regular.
Brian: Thank you. We're hearing, Timothy, a lot of $3 something in the Metro area, $4.99 at the entrance to the Lincoln Tunnel, if that was accurate. You heard Patrick's story from California and he was talking about Rodeo Drive, the gasoline stations of the stars. That's $6 a gallon gasoline, was out on Eastern California, that was from Mano County near Yosemite. What goes on to make gasoline prices that disparate between one coast and another?
Timothy: Couple of reasons. State taxes, each state has the ability to add whatever kind of taxes it wants to on top of the price of gasoline. California has always had higher taxes on gasoline in part due to the interest in alternatives, in electric vehicles, or whatever. That's led to acceptance for higher taxes in that state. Also, the California market basically operates as a separate market from the rest of the country, because you have-- Their oil is basically coming from abroad and from Alaska as the pipelines that are in the Texas and Louisiana and the East Coast, make it all the way out to California. That operates as a separate market. It's a little bit of a different beast and it'll take longer for this action by President Biden to have an effect there.
Brian: I'm seeing Linda in East Windsor, "$3.29 is a steal here." Says Linda in that part of New Jersey. These prices that we're hearing, they don't seem outrageously high historically. There've been plenty of years in the 21st century where people in New York and New Jersey are paying in the mid $3 for a gallon of gasoline. What's the crisis here? I know things were artificially low last year as you were describing because the economies were locked down in so many places, people weren't driving like they did in the past. Production was cut and prices came down because there wasn't demand. If it's only back up to $3.50 a gallon, wasn't it that for many years in the 21st century? If that's right, what's the big crisis here for releasing oil from the petroleum reserve?
Timothy: That's absolutely right. As I said earlier, in 2008 oil prices were $47 a barrel, and gasoline prices were way above what we're paying now. With the high crisis, you also have this huge jump in inflation, that's 30%. Food prices have gone up, that's also related to higher prices of fuels, but also because of difficulty getting workers, then all the supply bottleneck. The last thing the president wants is high motor fuel prices on top of high inflation. It's just numbers that people are seeing all the time. When people go out to restaurants these days, the prices are much higher, and they don't want to see the prices of gasoline go higher.
Brian: It's not bringing down the price of gasoline if it even comes down from releasing oil from the strategic petroleum reserve is going to make the prices go down at the restaurant or at the grocery store. Is it maybe for people who are food insecure we should have a strategic food reserve instead?
Timothy: That'd be a great idea. I think there are some efforts along that way, but certainly not like a national strategic petroleum reserve that you can announce with and get headlines and extreme interest in.
Brian: You're an environment and energy reporter, but to the extent that that overlaps with being an economic reporter, do you have any reason to expect that the price of food at the grocery store increasing as part of inflation right now will come down or not go up as fast because of this release of oil?
Timothy: The oil price has fallen about 10% since late October. When news of this release, and especially the coordinated release with other consumers around the world has fallen from $85 to about $80 in terms of the price of crude oil. In a sense, it already has had an effect and analysts were beginning to talk about without action, you could have seen oil going up to $100 a barrel. I think you're right that there might be a muted effect on this action taking prices down a lot but there is [inaudible 00:30:31] that go up by quite a bit. Which speaking to oil historian, Daniel Yergin yesterday he believes that you're not going to see so many forecasts of a $100 barrel of oil in the near term anyway.
Brian: Liz in Maplewood, you're on WNYC. Hey, Liz.
Liz: Hi. I've just been listening to all this and also listening to people I know griping about the gas prices that you just pointed out are not actually that high. These are some same folks whose equity in their homes has risen so much in the past year or two, whose portfolios are looking better than ever. I just think there's a lack of context and perspective, especially for middle-class people, upper-middle-class people. For people in the margins, obviously, food prices and gas prices are extremely-- That's right in front of them. I think for a lot of people, it's just like something to complain about and it's not actually affecting their vacation plans or anything else that they might be doing with respect to the gas prices.
Brian: You said to our screener something about housing prices?
Liz: If you own a home, basically, anywhere your home value has increased so much and you're sitting on equity, you're sitting on money that you can borrow against. The context of the gas prices compared with all these other things, it's like $3.50 a gallon, I don't know, it doesn't seem something insurmountable for a good number of people.
Brian: We need a strategic housing reserve, maybe more than a strategic oil reserve. Timothy, some environmentalists are suggesting that this oil price spike instead of being relieved as quickly as Biden can, could be used as a disincentive to use fossil fuels and accelerate the transition to non-climate polluting sources that Biden has promised in the longer run, is that a real option?
Timothy: Biden certainly is walking the balancing wire on this. He and his energy secretary have emphasized that they're trying to do this move for the middle-class consumer, that the middle-class drivers who may not own a home, they may be renters, so they may not have experienced this huge bump in home prices as they're trying to recover from the pandemic. Maybe people in their household are not able to go back to work yet. This is done for that, this move. The Biden administration also definitely wants to get electric vehicles moving. There's a lot in the legislation.
The Democrat bill that they want to pass, reconciliation bill that they want to be the next bill to pass after the bipartisan infrastructure bill is passed. There's a lot of incentives for electric vehicles in there that they want to move forward.
Brian: Listener tweets, "We're paying $2.80 in Memphis, Tennessee." Another caller tells our screener $2.98 in Mississippi. $3.28 at Costco and Oceanside on Long Island. That's the range, I guess, right? From $2.80 in Memphis, assuming these are being accurately reported, from around $2.80 in Memphis to around $6 a gallon near Yosemite.
Timothy: I believe that's true. I haven't seen the low price, but definitely the $6 in California at a couple of stations. I would agree with Joyce, just in terms of, if you buy gasoline at a no-frills brand, it's not like they are putting an additive in it.
Brian: It's also not any cheaper. If you buy a store brand of something instead of the name brand of a lot of products, you're going to get it cheaper. You buy the, I don't know, the CVS band-aids instead of the band-aid band-aids and they're going to be cheaper, but it's not true with the so-called off-brand gasoline stations?
Timothy: I'm not sure what you're saying there, but a lot of the off-brand stations sell gasoline for lower than-
Brian: They do.
Timothy: -the branded stations.
Brian: The red state versus blue state difference, is it because Tennessee and Mississippi are nearer to Texas and Louisiana, where so much oil gets produced, or does it depend on something else?
Timothy: That's part of it, but every state has a different outlook on the taxes that they add to a gallon of gasoline.
Brian: Also, Texas.
Timothy: Yes. California adds a lot to its gasoline, makes it go up. Other states have barely any taxes in addition to the federal taxes that must be on there.
Brian: Bottom line on the politics, Biden could make a short-term politically unpopular choice and maybe wouldn't be politically unpopular, but let's assume it's politically unpopular, politically unpopular choice to allow people to feel this gasoline price pain for longer in pursuit of using it to increase the incentive for more people to buy electric vehicles and things like that.
Timothy: He's got some tough choices. He said that this move is for the middle class who doesn't want to see the price get too high. It's also politically very unpopular to have the price go up and have everyone blaming you for that when you're trying to head into the midterm elections next year and you've got the slimmest available majority in the Senate, not much better one in the House of Representatives. He will get a lot of pressure from the environmentalists. I think you're going to be hearing a lot more on incentives, not only in the legislation, and the infrastructure bill that passed, but other actions that the administration is going to be taking.
The Department of Energy, for instance, is going to be adding 1,000 new people to take on mostly clean energy programs because of the infrastructure bill. Those people have to be hired fairly quickly.
Brian: Listener tweets, "Bought a Tesla last year and no longer worry about gas." Another listener tweets, "The electric vehicle incentives in the Build Back Better Bill leave e-bikes behind. There's no reason I should be able to get $12,500 off a car, but I am capped at a $1,500 subsidy when buying an electric cargo bike that would remove me from a car permanently." Obviously, the conversation goes on about our energy present and our energy future. We thank Timothy Gardner Energy and Environment Reporter for Reuters. Tim, thanks so much.
Timothy: Thanks, Brian.
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