This week we'll take a look at the Consumer Fuel Price Gouging Prevention Act. Since the invasion of Ukraine back in March, gas prices in the United States have been soring. But, the United States barely uses Russian oil. Why is this, what have gas companies been doing the last months, and what is the Consumer Fuel Price Gouging Prevention Act all about?
Why does Russia's invasion of Ukraine impact US gas prices?
In 2021, the top five source countries of US gross petroleum imports were Canada (51%), Mexico (8%), Russia (8%), Saudi Arabia (5%), and Colombia (2%). With only 8% of oil coming from Russia, why did the national average of gas prices shoot up to $5 per gallon?
Well, just because the United States does not depend on Russian oil for the majority of their imports, Russia is one of the largest oil exporters on the planet. In December it sent nearly 8 million barrels of oil and other petroleum products to global markets, 5 million of them as crude oil. Most of this oil went to Europe (60%) and China (20%). Because of Russia's invasion of Ukraine and penalties being imposed on Moscow, OPEC (Organization of the Petroleum Exporting Countries) slashed its forecast for Russian oil production in 2022 by 530,000 barrels. This means there is less oil for the world to use. Which, automatically limits the amount the United States can import from countries that are not Russia. Thus, the prices for oil for the United States are driven up like everywhere in the world. But, as time has gone on, oil prices have fallen to a price similar to what they were before the invasion, while gas prices have stayed high. Why is this? Two words. Rockets and feathers.
Rockets and Feathers
When oil prices rise, gas prices follow, quickly, shooting up like a rocket. When oil prices fall, gas prices slowly come down, like falling feathers. This phenomenon has been coined as “rockets and feathers” by energy experts. In 2014, the Federal Reserve Bank of St. Louis published a report demonstrating the “uneven” relationship of oil prices impact on the prices at the pump.
Oil and gas companies have had an incredible first quarter, $1.2 billion more on average per company in fact. According to Accountable.US, the top 21 companies in the United States took in $41 billion in profits during this year’s first quarter. President Biden tweeted, "Oil prices are decreasing, gas prices should too. Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it’s $4.31. Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans."
So, what is there to do?
Well, there is still the debate over how much the price of certain goods becomes affected when variables in the market change. Also, the US has no legal definition of what exactly constitutes price gouging. Which means, as it currently stands, oil and gas companies can legally take advantage of market instability by excessively increasing gas prices while limiting production to boost profits. Because of this, it is hard to know if an increase in oil and gas production, which many lawmakers are asking for, would impact the price of gas at the pump.
What does the Consumer Fuel Price Gouging Prevention Act do?
At its core, the Consumer Fuel Price Gouging Prevention Act aims to stop price gouging at the gas pump for Americans. It would do this by giving the President the power to issue an Energy Emergency Declaration to make it unlawful for companies to increase fuel prices to "unconscionably excessive" levels. This declaration could remain effective for up to 30 days, and could be renewed should the President see fit.
The Federal Trade Commission's power would also be expanded to allow them to investigate and address possible price gouging by "larger" oil and gas companies. Larger is defined in the bill as companies with $500 million in yearly wholesale or retail sales in the US. Any penalties found would be directed toward funding weatherization and low-income energy assistance. Through civil court action, state authorities would be granted enforcement powers against fuel price-gouging violations.
The bill passed the House mid May. Some Senators were frustrated with the bill and it was unclear if it would move forward. Bill sponsor, Representative Schrier said “At a time when people in the 8th district and across the country are feeling the pinch at the gas pump, Congress needs to be doing all it can to bring down costs for American families. What’s infuriating is that this is happening at the same time that gas and oil companies are making record profits and taking advantage of international crises to make a profit. This must stop. Gas and oil companies should be held accountable and should not be making the situation worse by gouging Americans at the pump. This bill needs to be passed and signed into law as soon as possible.”
Four House Democrats joined the 203 Republicans in opposing the bill. Representatives Jared Golden, Lizzie Fletcher, Stephanie Murphy, and Kathleen Rice all voted no. Murphy stated that the bill did little to address the forces driving inflation, and instead could vilify oil and gas companies in a way that would backfire, resulting in less production.
Other Republicans believe the way to alleviate the pain at the pump is to increase domestic production. The Federal Reserve Bank of Dallas (which covers the Eleventh Federal Reserve District, including high oil-producing states like Texas and New Mexico) conducted a survey in March which found many companies did not anticipate increasing production anytime soon. So, this likely is not a solution either.
At this time, the Senate does not have plans to take up this bill.
Cover Photo by Erik Mclean on Unsplash
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