OPEC’s Role in the Gas Price Crisis

As the sun sets, an oil rig continues its siphoning for one of earth’s precious commodities; oil.  

As the world emerges out of the pandemic, many Americans have turned to policy makers with their complaints and want for change. The COVID-19 pandemic shut down businesses, spiked unemployment, and caused rapid inflation. Actions such as the recent student loan forgiveness pushed forward by the Biden Administration have been accused by conservatives of being counterproductive towards fixing these ends. This contention, flaring only weeks away from the midterm elections, threatens the Democratic Party’s control of Congress. One of the most glaring of these concerns is the rise in gas prices felt nationwide in prior months. In the case of rising gas prices, however, some of the blame lies not with the government, but private investors. 

In a decision released on October 5th by the Organization of the Petroleum Exporting Countries (OPEC), a multinational organization created to coordinate the petroleum policies of its member states, OPEC declared its intent to cut oil production by two million barrels per day. This decision alone threatens to raise gas prices once more, negating any prior substantive declines in price and spurring once more the angst felt by the citizenry as they make their way to polls. There are a variety of conceivable reasons as to why this decision was made: It may be political malfeasance by members of OPEC in so much that the act was made so close to the election as an attempt to sway them. Another reason may be a motive of greed by those with ties to the oil companies within OPEC who long to see high prices return. More obviously, it may be due to the ongoing war in Ukraine, where its aggressor Russia, a producer of oil, attempts to reclaim Ukraine and leave the world to hold its breath in wake of what is to come. These opinions hold their merit, yet the companies themselves have spoken against these claims and suggest the blame stops at the company's shareholders. 

Following a crash in oil prices from the pandemic, oil companies have since moved to secure for themselves more certain assets and deals rather than tempting risk. Over the past year, expansion to new lands in exploration of oil deposits have declined drastically. Less and less are companies interested in taking risks that might lead them to incur losses beyond their experiences in the pandemic, such that only twenty two global lease sales have occurred in 2022 (the lowest since 2000). The risks themselves do not solely come in the form of prices, but also as political tension in foreign lands outside of the U.S. that may lack regulation, geological risks to new areas which may require unconventional means to drill, and upfront operational costs to each drill site. 

Governments themselves have not been the cause of declining sales: the Biden Administration was forced to shut down an offshore lease in Alaska last May due to a lack of “industry interest.” Acquiring more oil will require more funding if these companies are to move forward with these risky endeavors. Investors in these oil companies have since turned and closed their wallets in aiding this front. It is often these same investors who hold large amounts of stock within the company and therefore hold high sway in its directive, opting instead for few but more certain purchases to keep the company alive. These investors' actions should be thought of as a response to adverse effects felt from the pandemic. Drops within the stock market, the rise in inflation, or even a job loss, may choke hold them into being more careful with their next steps forward, thus tightening the expansion of these companies. Globally, the ongoing invasion in Ukraine has sent ripples throughout the world. Moves against the country’s exports have spiked prices in this area, and a wise investor moves to keep prices high as it goes to fill their own pocket. To drill for more oil may risk a decline in price.

In contrast to these facts, blame has instead been thrusted upon the inaction (or proclaimed opposing action) by the federal government to fix or better the citizenry’s situation. To turn back the fault, and instead be proclaimed the heroes of this matter, Democrats can move to increase the lease sales on these lands, so that US oil companies can be subsidized to provide a base on which they may take footing for riskier buys. If not subsidies, a system of incentives to lands and regions deemed unwanted by most companies to attract drilling in these areas would be beneficial. An announcement of such a kind made by either party may sway many voters as we approach election day. As we move further out of lockdown and return to normalcy, we must remain active and energetic to revitalize our way of life and be on guard against attempts that would do further harm to it.