Illinois Oil Producers Have No Control Over Pump Prices

The following was published as a guest column in the Alton Telegraph, Centralia/Mt. Vernon Sentinel, Kankakee Daily Journal and Villagers’ Voice.

As gasoline prices soar to unprecedented levels, the narrative that oil companies are price gouging at the pump is becoming quite prevalent. But as Politico recently reported, though many are blaming oil companies for high prices, “the facts don’t back them up.”

Facts are indeed a stubborn thing.

Fact: the Federal Trade Commission, state attorneys general and consumer groups have spearheaded hundreds of lawsuits and investigations into alleged oil company price gouging and have turned up zero evidence that any coordinated manipulation of oil markets has taken place.

Fact: oil companies – and particularly the small, independent producers most prevalent here in Illinois – have absolutely no ability to control prices. If they did, they certainly would have never allowed oil prices to go negative in April 2020.

Fact: Crude oil and gasoline, the latter a refined petroleum product, are globally traded commodities and their prices are determined by global supply and demand.

At the moment, global demand is soaring toward all-time highs while supply has been limited by a decade of underinvestment in new drilling, a phenomenon that has been fueled by both government policies and the hydrocarbon divestment movement. These are the primary reasons why oil and gasoline prices are so high and likely will remain high for some time. The ban of Russian energy imports by several nations and private companies has only made an already bad supply/demand imbalance worse.

Here in Illinois, where there are no publicly traded companies producing oil, our small independent operators are typically three layers removed from the gasoline and diesel that is eventually purchased by consumers. A vast majority of Illinois oil producers sell their crude oil to midstream companies commonly known as first purchasers. The price oil producers receive from the sale of their crude to first purchasers is based on the posted domestic West Texas Intermediate price at the time of the sale, with a transportation and storage fee deducted from that base price. The first-purchaser then sells the crude oil to a refinery. Following the conversion of that crude into fuels, refineries eventually sell gasoline and diesel to a petroleum marketer. The finished product is then sold to services stations that ultimately determine the pump price.

So next time you’re driving by a gas station and feel compelled to curse at the sky-high price posted on the sign out front, please consider sparing Illinois oil producers from your ire.

The fact of the matter is, the world still runs on oil and will for decades to come. A vast majority of our transportation fuels are petroleum-based. In addition to our personal vehicles, more than 70 percent of all goods shipped in the U.S. are transported by predominantly diesel-powered trucks. And as NBC News recently reported, 40 percent of the world’s petroleum demand “can be found in everything from mascara to medical devices” in the more than 6,000 petroleum-based products that we use every day.

That’s why even Tesla CEO and founder Elon Musk has acknowledged that “we need to increase oil and gas output immediately” and “civilization would collapse and everyone would be starving” if we eliminated oil and natural gas right now.

The Biden administration’s Energy Information Administration (EIA) even projects we will not only need oil and natural gas decades from now – but that we’ll actually need more than we are currently using by 2050. As EIA Deputy Administrator Stephen Nalley recently said, “We do not see liquid fuels and natural gas losing their place as the top two sources of energy in the US to 2050. That appears to be true under a pretty wide variety of assumptions about economic growth, technology and energy development costs and prices.”

Bottom line – lowering pump prices and energy costs won’t be as simple as everyone just buying an electric vehicle. We must develop as many domestic energy resources as possible with the knowledge that our economic and national security depends on it. Anyone who doubts that fact need only look at Europe, which is dealing with sky-high energy costs while relying on Russia for a quarter of its crude oil and 40 percent of its natural gas imports.