What Drives Energy Prices?

It has been interesting to me to be a casual observer to some of my FB acquaintances seizing upon the president's current dilemma with a Middle East War to take a cheap shot at him over this year's rise in energy prices.  While at the same time, other of my FB acquaintances have felt it necessary to personally come to the president's defense over the turmoil in the energy markets.  As if any of this profligate use of bandwidth is going to change anything.

Both camps seem to have seized upon the superficial idea that presidents directly control the price of a barrel of oil, natural gas or refined commodities like gasoline and diesel.

As a recovering financial guy I will tell you that the President doesn't have a secret lair in the White House bunker where they can dial the price up or down for any of this. 

So, what does impact the pricing of energy?

Global supply and demand primarily.  Oil is a global commodity.  A sudden surge in global demand or interruption of supply pushes prices up worldwide.  The opposite happens with a sudden drop in demand or surge in supply.  Natural gas has increased it's share of the global energy market with the growth in trade of Liquefied Natural Gas (LNG).  Nevertheless, because natural gas in North America moves through regional pipelines this build-in infrastructure restriction means that pricing remains local; not global. 

 

As for oil, geopolitics and supply chains play a critical role.  Conflicts such as wars, refinery bottlenecks, shipping interruptions and even pandemics can impact prices.

OPEC+ is a producer group that can exert substantial influence over oil prices. It meets, determines production targets and changes in output can materially affect the global supply-demand balance.  

Gasoline is more complicated.   There are four principle contributors to higher gas prices.  In May of 2026, for example, roughly 52%, of the cost of a gallon of gasoline was the price of crude oil.  Rule of Thumb:  Every dollar increase in a barrel of crude = 2.4 cent increase in the cost per gallon.  Refining and profit margin are 22%, state and federal taxes 12%, followed by distribution and marketing at 15%.  The percentages don’t add up to a perfect 100% on account of rounding, but you get my drift. 

Differences in state and local taxes, seasonal blend changes, refinery economics, transportation costs and regional supply constraints explain inequities in pump prices across state lines.  All of the foregoing elements create even more layers between the Oval Office and the pump.  The crux of the matter is there is no single government entity that sets your retail price.

Insofar as a president's impact on this it is a fact they can influence energy markets - sometimes significantly - but they cannot control them.  

Consider this. 

Sanctions and export licensing are fast-acting tools; blunt and mostly geopolitical.  Sanctions on a major producer, or easing them, can move the price of crude within days and weeks.  Same for tariffs that raise input costs or tapping the Strategic Petroleum Reserve (SPR). 

Unlike short-term emergency fixes that offer temporary relief; policy shifts take time to affect markets.  Production tools such as leasing, permitting and environmental regulations that people argue about are slow-acting.  Federal lands and waters account for roughly a quarter of domestic oil production, so federal leasing and permitting matter; but their impact on national oil prices are neither immediate nor one-for-one.

The use of the SPR is the closest thing to a dial in a White House bunker except it's a release valve for a fixed, finite inventory; not a tool to influence long term prices.  The 2022 release - roughly 180 million barrels over several months in response to Russia's invasion of Ukraine - is a real life example.  

The SPR's impact comes from both the physical addition of supply and the market signal that additional supply is available.  But it is a short-term tool, not a way to permanently alter the underlying supply-demand balance. It is also self-limiting. The SPR is not bottomless and a big release constrains the next president's options; so it's fast but not free. 

Finally, oil is an odd duck because prices don't simply reflect immediate supply and demand. Market expectations play a role. Traders price-in what they expect supply and demand to look like in the future.  That is why even a threat to shipping through the Strait of Hormuz, an expected production cut, an anticipated refinery outage or an announcement of an SPR release can move prices before a single barrel actually changes hands. 

Blaming or thanking the current or former occupant of the White House for what you pay at the pump makes for social media click bait but does not take into account the clout of global market economics and other more nuanced influences.

Anything else is magical, wishful thinking.

Learn more here:   https://www.eia.gov/petroleum/gasdiesel/