President Joe Biden announced an import ban on oil from Russia on Tuesday in response to the ongoing invasion of Ukraine, and in addition to other severe sanctions imposed on the country by the U.S. and its allies.
The ban has raised major concerns about the rising price of gas at the pump. Although the U.S. is far less reliant on Russian oil than the European Union, the decision is likely to further exacerbate the market.
The U.S is a major oil-producing nation. Some Americans may be wondering why it's necessary to import oil from other countries in the first place. Experts who spoke to Newsweek explained that the U.S. is not self-sufficient in oil, while market factors play a outsized role in the decision to import the essential fossil fuel.
Robert Kaufmann, a professor with the Earth and Environment Department at Boston University, researches global climate change, world oil markets and land-use changes.
He told Newsweek that the U.S. uses more barrels of oil per day than it produces, necessitating imports from abroad.
"The U.S. imports oil because consumption of oil products—about 20 million barrels per day—is greater than the quantity of crude oil it produces, about 18 million barrels per day," Kaufmann said. "This difference, about 2-3 million barrels per day, is much smaller than previous years."
Oil products include gasoline used to run the vehicles driven by everyday Americans. It is currently experiencing a serious price spike. The American Automobile Association (AAA) tracks the price of gas and reported the national average per gallon at more than $4.25 on March 9.
The Price of Oil
Kaufmann explained that U.S. oil imports were not the decisive factor in deciding how much Americans pay for a barrel of crude oil.
"The quantity of oil that the U.S. imports has little to no effect on the price we pay for crude oil," Kaufmann said. "There is one global market for crude oil. That global price sets the price for all crude oils, plus or minus a couple of dollars depending on transportation costs and the quality of the crude oil."
"Even if the U.S. produced all the oil it needed, U.S. consumers would pay the global price," he said.
Self-Sufficiency
Kaufmann said U.S. self-sufficiency in oil would not have the effect of reducing prices.
"Suppose the U.S. was self-sufficient in oil and that oil was selling for $70 a barrel, as it was before Russia invaded Ukraine," he said. "The invasion raises the price for crude oil on the global market to $110."
"Would U.S. producers sell U.S. consumers oil for $70 per barrel when they could sell that same barrel overseas for $110? Of course not!" Kaufmann said.
A More Economic Option
Philip Walsh, professor in entrepreneurship and strategy at Ryerson University in Toronto and principal investigator at the university's Center for Urban Energy, told Newsweek that foreign oil is imported to supplement U.S. crude oil production.
Walsh explained that crude oil is used "to produce refined petroleum products such as gasoline or heating oil to be used domestically and to be exported to international markets."
"Since crude oil also comes in various degrees of quality, the economics of refining that crude into petroleum products—and where it is refined—plays a significant role in determining whether the crude is imported or not," he said.
"If importing crude oil is a more economic option than using domestic crude to produce the refined petroleum product, the market will choose the import option," Walsh said.
The price of crude oil was around $125 per barrel on Wednesday morning, a decline from a high of more than $130 per barrel on Monday. However, the price could rise further as the war in Ukraine continues. American consumers could also see further rises in the price of gas as a result.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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I'm well-versed in the complexities of global oil markets and their impact on economies. To begin, the recent import ban on Russian oil by President Biden is a significant move given the ongoing conflict in Ukraine. This decision has raised concerns about gas prices, an issue that's deeply connected to the intricate dynamics of global oil trade and domestic consumption.
The US, despite being a major oil producer, still imports significant quantities due to a consumption rate exceeding its production capacity. As Robert Kaufmann, an expert in Earth and Environment at Boston University, mentioned, the US consumes about 20 million barrels of oil per day while producing roughly 18 million barrels. This disparity necessitates importing around 2-3 million barrels daily.
Contrary to common belief, the price Americans pay for crude oil isn't determined by the quantity the US imports. The global market sets the price for crude oil, influencing costs universally. Even if the US were self-sufficient, its consumers would still pay the prevailing global price.
Kaufmann emphasizes that self-sufficiency wouldn't reduce prices either. If the US were producing enough oil for its needs at $70 a barrel and the global market price surged due to geopolitical events, say to $110, domestic producers wouldn't sell at the lower price when they could earn more by exporting at the higher rate.
Philip Walsh, an expert in entrepreneurship and strategy at Ryerson University, adds another layer by explaining that the economics of refining crude into petroleum products play a pivotal role in import decisions. If importing crude for refining into petroleum products proves more economically viable than using domestic crude, the market opts for the import route.
These dynamics are currently reflected in the price of oil, which fluctuates due to geopolitical tensions. As the conflict in Ukraine persists, there's potential for further increases in oil prices, directly affecting gas prices for American consumers.
In essence, the intricacies of global oil markets, consumption rates, geopolitical events, and refining economics collectively dictate the necessity for oil imports and subsequently influence the prices consumers pay at the pump.
