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Oil: ‘We’re not seeing the bounce back we’d hope for’ in supply, energy expert says

In this article:
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Severin Borenstein, professor at UC Berkeley Haas School of Business and faculty director of the Energy Institute at Haas, joins Yahoo Finance Live to discuss how oil producers are struggling to keep up with global demand.

Video Transcript

- We're taking a look at oil prices today that have been on the rise. That's after Saudi Arabia said it was raising the prices it charged for oil that it is sending to Asia. But while consumers back here in the United States are feeling pain at the pump, the global market for oil, together with equipment, labor shortages, scaling issues, are leaving lawmakers and leaders with very few levers to pull. Here with more is Severine Borenstein. He's UC Berkeley Haas School of Business professor and Energy Institute at Haas faculty director.

Severine, thank you for being here. So reading a recent piece that you wrote, basically, it seems like there is not a whole lot that policymakers can do besides a whole lot of talking when it comes to trying to move energy prices down. Is there a sort of anything effective on the policy front?

SEVERIN BORENSTEIN: Not a lot. The Democrats are suggesting that this is corporate greed, but the US oil producers are pretty much just going along for the ride on high oil prices. They're not the ones driving it.

And the Republicans are suggesting that we should drill more, which might get you more oil in a few years to open up more land for drilling. But it's not going to make a difference in the short run. And in the long run, of course, we have to be moving off oil to reduce greenhouse gas emissions.

So I think for now, the Russian attack on Ukraine and the strong world economy are driving demand higher while supply has really lagged. Oil producers have had a hard time getting workers back into the fields and getting the equipment they need. And so we're not seeing the bounce back that we would hope for.

- How much do you believe that that will actually facilitate a transition to some of the clean energy options, especially among consumers who have already been looking at an accelerated pipeline of electric vehicles that have come on the market too?

SEVERIN BORENSTEIN: Oh, I think this is definitely pushing consumers to take another look at electric vehicles. I'm not sure that we are going to be able to keep up on the supply side very quickly. Electric vehicles are also something in short supply right now.

But I think this will give a bit of a push. But we are a long ways from where we have to be on electric vehicles. So I think that over the next year or two, we are going to gradually see oil prices come down.

That's what the futures markets are predicting. And we still are going to be ramping up electric vehicle production. So while this will help and maybe people will remember it, consumers tend to have very short memories on oil prices. I'm often told that gas prices only go up, they never come down, that people can't even remember the beginning of the pandemic when they had extremely low levels by historical standards.

- So for the new investors out there watching this program, would higher taxes on the wealthy and corporations do anything to bring down high gas prices?

SEVERIN BORENSTEIN: No, high taxes on corporations are not going to bring down oil prices. What they could do is help finance some sort of rebate to help lower income families afford not just high gas prices but also high utility bills that they are facing with as natural gas prices are going up. But they would have no direct effect on lowering the price of gasoline.

- Yeah, the sticker shock from my electric bill month after month, it is not fading, Severine. I have to admit. You're out there in California where we in the media love to show the pictures at the gas pump, right, of the prices because they are higher than everywhere else. And you devote a little bit of time in your piece to talking about why the prices are so high out there. Why are the California prices higher than everywhere else?

SEVERIN BORENSTEIN: Well, California has much higher gas taxes and environmental fees than the rest of the country. We have a cap and trade program to reduce greenhouse gases. We also have a program to reduce the carbon content of gasoline by mixing in more biofuels.

And those raise costs. We have a gas tax, which goes to all sorts of programs, including roads and also support for alternative energy. And then we also have had, since 2015, something I call the mystery gasoline surcharge.

This is an extra $0.30 on average that has shown up in our gas prices since a refinery fire in 2015 that has been a persistent additional differential between California and the rest of the country that is not explained by any of the taxes or fees. Somewhere in the supply chain, an extra $0.30 on average-- it's actually a bit higher right now-- is disappearing into someone's pocket. We don't know who's.

And I've been advocating that California lawmakers investigate this. While we can't do much to reduce the taxes and fees, we could figure out where this money is going to at least reduce that additional payment. But let's be clear.

The main reason gas prices are so high in California and everywhere is high oil prices, and those high oil prices are being driven by the Russian attack on Ukraine and the very strong world economy while supply has lagged. The good news is supply is starting to catch up. We're still a million barrels a day below pre-pandemic production in the US. But we are starting to see workers get back to the fields and some of those equipment shortages be addressed.

- All right, national average sitting at 4.87 right now. Severine Borenstein, who is the UC Berkeley Haas School of Business professor and Energy Institute at Haas faculty director, thanks so much for taking the time and helping us break this down.