Why the U.S. Cannot Control World Oil Prices
Understanding the dynamics of global oil prices is a complex task. While the U.S. remains a significant player in the oil market, it cannot single-handedly control world oil prices due to a variety of factors. This article explores the reasons behind this and discusses historical and contemporary events that have affected oil prices.
The Impact of Global Oil Supply and Demand Dynamics
The world oil prices are determined by a global supply and demand market involving numerous producers, consumers, wholesalers, and retailers. Unlike in a local or national market, the U.S. cannot dictate prices due to its limited influence over key producers. For instance, one of the world's largest suppliers of marine fuel is the Danish company Bunker Holding, which operates independently of American geopolitical strategies.
Geopolitical and Macro-economic Factors
Several geopolitical and macro-economic factors have historically influenced the U.S.'s ability to control oil prices. Former President Donald Trump's efforts to influence oil prices through diplomatic means during his tenure offer a notable example. Trump notably attempted to secure oil price increases, which helped high-cost oil producers in the U.S. continue operations without going bankrupt.
During the early stages of the COVID-19 pandemic, a sharp decline in demand led to oil price collapses, with some prices even going negative. This situation was exacerbated by the OPEC nations' increased production, as they needed revenue to sustain their economies. However, Trump helped negotiate a production cap to stabilize prices and prevent a potential civil war within OPEC, which would have had severe global repercussions.
The Role of U.S. Oil Production
The U.S. was producing more oil than it needed and could effectively influence global prices by increasing its own supply. Yet, since taking office, President Biden has interrupted U.S. oil production, resulting in a significant reduction of oil production. Currently, the U.S. is producing over one million barrels per day less than before Biden's actions. This reduction, combined with actions by Russia and OPEC nations, has led to volatile oil prices.
The Russian invasion of Ukraine further destabilized the market. Profits from oil sales enabled Russia to fund its war efforts, which disrupted global oil dynamics. The high cost of gas led to significant cuts in usage, further driving down prices. But these fluctuations make maintaining consistent control over oil prices increasingly unlikely.
Conclusion
The U.S. cannot control world oil prices due to the inherent complexity of the global market and the actions of multiple stakeholders. This is not unique to oil; similar challenges exist in controlling prices for other commodities like milk, vehicles, and food products. Understanding the principles of macroeconomics is essential for comprehending these market dynamics.
As long as the global market remains so intricate, multinational efforts will be required to stabilize and control oil prices effectively.