Does lowering fuel prices contribute to igniting the energy crisis?  - energy

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The increase in fuel prices is a specter that the governments of big and small countries fear. for his ability to ignite popular protests; Where any movement in transport fuels leads to a rise in the prices of all goods and services, and an increase in inflation rates.

And energy analyst, Julian Lee, believes that the increase in gasoline and diesel prices should be offset by a decline in demand, not an increase in government subsidies or a reduction in fuel prices or fees, as most governments do in such crises.

With the recovery of global demand after emerging from the depression of the Corona epidemic, and fears of a lack of energy supplies as a result of the Russian war on Ukraine, oil prices jumped above levels of $112 a barrel, after being orbiting around $70 a barrel during 2021.

Wrong policies in lowering fuel prices

In March, after the UK government announced a year-long fuel tariff cut, energy market analyst Javier Blas argued that governments were pursuing the wrong energy policies to encourage rather than curb demand for fuel.

“He was absolutely right, the evidence is mounting of policy makers’ mistakes, yet they do nothing to correct their mistakes, they just make things worse,” says Julian Lee.

fuel prices
Writer and energy analyst Julian Lee

Gasoline and diesel prices have reached record levels around the world; In the United States, the price of gasoline topped $4 a gallon in all 50 states last week, for the first time ever in American history, even though peak driving season has yet to begin.

According to the American Automobile Association; The average price for a gallon of gasoline in Washington state is $5.18, exceeding that nationwide average of $4.59, and nearly double the average of 2.41 during the final month of President Donald Trump’s presidency.

The average domestic diesel and gasoline prices in the United States of America exceed the levels reached at the height of the global financial crisis in 2008.

Average US diesel prices hit a record high of $5,573 per gallon on Tuesday 17 May.

Distillate stocks shortage

In the United Kingdom, fuel prices are setting records despite a tariff cut of about 5p per liter at the end of March, which was supposed to translate into a 6p drop in prices, which was achieved for short periods, before supply factors pressured And the demand for both types of fuel prices to return to the levels before the reduction of fuel surcharges.

fuel prices
A crane in the Permian Basin for oil production in the United States

The problem is that fuel stocks are at multi-year lows; Average distillate stocks, which include diesel, heating oil and jet fuel, were at a 12-year low at the end of March.

On the US East Coast, distillate stocks of the same fuels have fallen to levels never seen before, and gasoline stocks have fallen to their lowest levels since 2014.

“If governments need more evidence of tight transportation fuel supplies, they should look at the difference between spot and future fuel prices,” energy analyst Julian Lee says in an article for the US Bloomberg Agency, seen by the Specialized Energy Platform.

He added that the decline in road fuel markets (where spot prices exceed futures prices, which indicates an immediate shortage of supplies), is greater than in 2008, when oil prices exceeded the barrier of $150 a barrel.

Reducing the demand for fuel

Instead of realizing that the demand for oil should fall, governments around the world are doing their best to ramp up fuel consumption, whether by cutting taxes, continuing to support prices, or scolding retailers for their alleged failure to pass the tax cuts in full.

Washington is considering imposing a law to prevent excessive fuel price hikes during emergencies, and in Britain, British Business Secretary Kwasi Quarting urged fuel dealers to sell at fair prices.

On Thursday, May 19, the US House of Representatives voted to pass the Democrats’ bill; Aimed at combating gasoline price gouging.

The United Kingdom sets an energy price ceiling for homes; To protect consumers from their sharp rise, prices jumped to record levels last April, by 54%; This put additional pressure on 22 million consumers.

fuel prices

Julian Lee, in his article seen by the Specialized Energy Platform, emphasized that lowering fuel prices would only exacerbate the situation; The demand for transportation fuels increases during the summer in the northern hemisphere, with expectations of a new increase in the price of airline tickets.

“Reducing fuel surcharges, as the UK government and other countries have done, leads to smaller, short-lived drivers’ sleep; as costs come down, demand rises, thus putting more pressure on an already groaning supply chain,” said Bloomberg, an oil strategist. Then it throws prices into the range they were in before the tariff cut.”

He stressed that governments should leave fuel prices to be determined based on supply and demand, despite the fact that the matter is painful and popularly rejected, while directing assistance to those who specifically deserve it.

He pointed out that gasoline and diesel prices will continue to rise if demand is not reduced to match supply.

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