Just in time for Independence Day, Illinois’ gasoline tax doubled this week from 19 cents to 38 centers per gallon. Illinois now boasts the third-highest gasoline tax in the country, and such taxes are responsible for a significant chunk of what consumers wind up paying at the pump.
But fortunately, as the Arlington Heights Daily Herald reported Tuesday, “many consumers were spared massive sticker shock” thanks largely to “a robust supply of U.S. oil related to fracking.”
Indeed, the United States’ ongoing oil boom can be credited for keeping Illinois gasoline prices far lower than they otherwise would be in the wake of the state’s latest tax hike. U.S. oil production recently surpassed 12 million barrels per day, a 140 percent increase from 2005. As Argonne National Laboratory expert Don Hillebrand told the Daily Herald, “When there's volatility, the U.S. has the capacity to start pumping. We can naturally bring down prices by opening up other sources of oil.”
So why are gasoline prices still relatively high despite record-shattering U.S. oil production? That’s because domestic oil production is just one of a myriad of factors that determine prices at the pump.
First and foremost, refined products such as gasoline are traded on the world market and are determined by global market prices, accounting for more than half of the ultimate pump price. That noted, booming U.S. production — coupled with Congress lifting the longtime ban on crude exports in 2015 — has kept gasoline prices in check by keeping the global market well supplied at a time in which it would have otherwise been drastically undersupplied had the export ban not been lifted.
The United States was responsible for 98 percent of global crude oil supply growth in 2018 and exports have continued to surge this year to more than three million barrels per day, blunting geopolitical tensions, specifically with regard to Iran.
Record U.S. crude exports have also hampered the OPEC cartel’s ability to artificially drive up global oil prices (and prices at the pump) by deliberately undersupplying the market. OPEC has repeatedly attempted to manipulate the market by cutting production over the past couple years, but U.S. drillers have countered time and time again by filling the void created by OPEC production cuts.
Which all begs a fair question: Why does the United States continue to import oil, including oil from OPEC? This can be explained by the fact that, prior to the shale boom, many U.S. refineries spent billions of dollars on special equipment to process the dense, high-sulfur, low-quality crudes coming from Mexico, Venezuela, Canada and Saudi Arabia. These refineries simply weren’t configured to process the light, sweet crude that started gushing from U.S. shale fields about 10 years ago.
However, with U.S. production expected to continue surging through at least 2030, many refineries have reconfigured their operations accordingly. Subsequently, U.S. OPEC imports have fallen to a 30-year low and are expected to continue declining sharply in the coming years. In fact, we will become an annual net exporter of energy next year for the first time since 1953. We are also expected to supply one-fourth of global oil and natural gas production by 2030. This is a really big deal, considering the International Energy Agency forecasts oil and natural gas remaining the dominant U.S. energy source through at least 2050.
Unfortunately, already overtaxed Illinoisans can’t do much about the gasoline tax doubling. But thanks to the continued hard work and innovation of the U.S. oil production industry — which directly employs 4,000 directly right here in the Land of Lincoln — Illinoisans should at least continue to get some relief at the pump.