The Biden administration has taken a strange view that the rising prices many American households have faced throughout 2021 are a good thing because more people are buying goods.
Watch the following exchange between CNN's Jake Tapper and White House Press Secretary Jen Psaki in this short video clip from 15 October 2021:
Jen Psaki Defends Rising Prices: 'Good Thing' Because it Means 'More People are Buying Goods' pic.twitter.com/IaKVYVSCbR
— Jason Rantz on KTTH Radio (@jasonrantz) October 15, 2021
If prices are rising because more people are buying goods, the economic law of supply says we should also be seeing the supply of those goods increase. That's because rising prices, all things being equal, gives producers an incentive to sell more of the things they produce. More importantly, rising prices give marginal producers who can dial up their production a very strong incentive to produce more. Otherwise, they're losing out on easy profits.
For much of 2021, you can see the Law of Supply at work, with some very noticeable exceptions, in the following diagram charting the weekly price and quantities of crude oil being processed at U.S. refineries throughout 2021.
Those very noticeable exceptions include:
- Supply disruptions related to the February 2021 Cold Weather Event that shut down oil production and refining in the U.S.' gulf coast states.
- Supply disruptions from the impact of Hurricane Ida in September 2021.
In the case of the February 2021 Cold Weather Event, oil production in the U.S. fully recovered, with rising prices coinciding with rising supplies. The recovery from Hurricane Ida looks similar, up to a point. We see that something went very awry after 1 October 2021. Instead of the supply of crude oil rising with rising prices as it did earlier in the year, the supply of crude oil going into U.S. refineries has fallen, while prices have continued to escalate. Not only that, refineries never recovered to the levels they were producing before Hurricane Ida disrupted production.
Since 1 October 2021, something very different is at work in the U.S. economy. To confirm that's the case, here's our tool for determining whether supply or demand is behind changes in price. We've set the default entries to apply to the situation with oil being processed at U.S. refineries since 1 October 2021.
We confirm that oil prices are rising now because the supply of crude oil being processed at U.S. refineries has fallen. That is something that's now showing up across the U.S. in the form of rising gasoline prices.
The U.S. Energy Information Administration is claiming that demand is rising faster than supply, but their own data says otherwise. We also looked at the weekly number of barrels of crude oil from U.S. field production and being imported into the U.S., and find they have recovered to pre-Hurricane Ida levels.
The only explanation we've found that correlates with the price and quantity data points to refineries temporarily shutting down to change over to approved winter blends of petroleum products. If that's indeed all it is, that environmental regulation-driven change has a negative economic effect similar to a sustained, small-scale supply disruption caused by a natural disaster.
References
U.S. Energy Information Administration. Petroleum & Other Liquids: Weekly Crude Oil Spot Prices (West Texas Intermediate). [Online Database]. 27 October 2021.
U.S. Energy Information Administration. Petroleum & Other Liquids: Weekly U.S. Refiner Net Input of Crude Oil. [Online Database]. 27 October 2021.
U.S. Energy Information Administration. Petroleum & Other Liquids: Weekly U.S. Field Production of Crude Oil. [Online Database]. 27 October 2021.
U.S. Energy Information Administration. Petroleum & Other Liquids: Weekly U.S. Imports of Crude Oil. [Online Database]. 27 October 2021.