The United States is one of the world's biggest oil producers, so why have gasoline prices soared to all-time highs and oil prices recently hit their highest levels since 2008?
Here, Newsweek looks at who owns and regulates U.S. oil production and the complex factors that influence the price of oil and gasoline in the U.S.
Who Sets Oil and Gas Prices?
Richard Joswick, head of global oil analytics at S&P Global Platts, told Newsweek that the price of oil and gas is not controlled, "it's market pricing" and it depends mostly on supply and demand for the product.
Joswick explained that markets move together, based on a few main benchmarks that determine the price for multiple grades of crude oils, including varieties and blends. There are three main benchmarks to look at, according to Joswick—dated Brent being the most important for crude oil, the New York Mercantile Exchange (NYMEX) for gasoline and the Intercontinental Exchange (ICE) price for diesel.
The main factors impacting gasoline prices at the pump, according to the American Petroleum Institute (API), are the cost of global crude oil (61 percent), refining costs (14 percent), distribution and marketing costs (11 percent) and federal and state taxes (14 percent).
How Much Is U.S. Gasoline Taxed?
Gasoline in the U.S. is subject to both federal and state taxes. Federal taxes include excise taxes of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel, plus a "leaking underground storage tank" fee of 0.1 cents per gallon on both fuels.
State taxes vary from state to state, and include things like excise taxes, environmental taxes, special taxes, and inspection fees, but they exclude state taxes based on gross or net receipts. State taxes on gasoline range from $0.0895 per gallon in Alaska to $0.576 per gallon in Pennsylvania.
Who Owns the Oil and Gas in the U.S.?
Oil and gas resources in the United States are generally privately owned, not by governments as in some other parts of the world.
The high oil prices have helped U.S. oil companies like ExxonMobil and Chevron post bumper profits.
Oil and gas rights may belong to private landowners, corporations, Native American tribes or federal, state or local governments that own the land that the minerals lie under.
There's no specific body or policy that regulates the oil and gas industry in the U.S. but federal, state and local governments each regulate various aspects of oil and gas operations. Who regulates what mostly depends on land ownership and whether the territory is covered by federal regulations or state laws.
In general, according to research by the American Geosciences Institute (AGI), most drilling and production is regulated by state laws, while federal regulations mostly safeguard water and air quality, worker safety, and exploration and production on Native American and federal lands.
Does OPEC Influence U.S. Oil Prices?
The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 countries: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela.
Its goal is to "coordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry," according to a statement on its website.
OPEC doesn't have direct influence over American oil, but since the oil price is set by the global market and OPEC members produce about 40 percent of the world's crude oil, and export over 60 percent of total petroleum traded internationally, its policies indirectly affect prices in the U.S.
In particular, according to the U.S. Energy Information Administration, indications of changes in crude oil production from Saudi Arabia, OPEC's largest producer, frequently affect oil prices. Saudi Arabia has been resisting Western pressure to increase oil output to ease pressure on prices during the Ukraine crisis.
How Is the Russia-Ukraine Conflict Affecting U.S. Oil Prices?
On March 8, President Joe Biden banned the import of Russian oil, liquefied natural gas, and coal to the United States in response to Moscow's invasion of Ukraine. Russia was in any case a relatively small energy supplier to the U.S., exporting nearly 700,000 barrels per day of crude oil and refined petroleum products to the U.S. last year.
U.S. allies have also moved to cut imports of Russian oil and natural gas, leading to a scramble for alternative sources of supply that has kept prices high. International oil prices rose on May 31 after the European Union agreed to cut Russian oil imports by 90 percent by the end of 2022.
Biden has sought to ease market tightness by ordering the release of oil from the U.S. Strategic Petroleum Reserve.
Who Regulates Oil and Gas Rights and Leases?
Development rights for oil and gas in this country are usually regulated by private contracts, for example a lease between the owner, who could be an individual, a corporation, a Native American tribe, or a local, state or federal government owner, and the entity that will explore and develop it.
According to Thomson Reuters Practical Law, private land leases are typically subject to private and confidential negotiation, while public land leases are typically conveyed based on a public and competitive bidding process.
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Who Regulates Oil and Gas Extraction and Production?
Exploration and production on state or private land are regulated by state law. As far as offshore oil deposits are concerned, the states regulate oil and gas operations in state waters, which extend to between 3 and 9 nautical miles from the shore. The federal government regulates offshore exploration for the Outer Continental Shelf, which extends from the edge of state waters to 200 nautical miles offshore. Federal government regulations apply on federal land and waters.
On-shore regulations
The Bureau of Land Management regulates federal onshore lands, and it has jurisdiction over almost all leasing, exploration, development, and production of oil and gas on federal and Native American lands.
Offshore regulations
The Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement, formerly known as the Minerals Management Service, are responsible for offshore federal areas.
The former is responsible for providing leasing programs, conducting resource assessments, and licensing seismic surveys, and is divided into four regions: Alaska, Atlantic, Gulf of Mexico, and Pacific. The latter regulates all oil and gas drilling and production on the Outer Continental Shelf and is responsible for enforcing safety and environmental regulations for offshore oil and gas resources.
Who Regulates Oil and Gas Transportation?
Transportation legislation for oil and gas in this country is mostly based on environmental impact and hazard. The operation of oil pipelines is regulated by state law.
Fuel distribution systems, including pipelines, trucks, and fuel dispensing facilities are regulated by the Environment Protection Agency, which also regulates air emissions from refineries.
According to the AGI, transportation of oil through interstate oil pipelines is regulated by the Federal Energy Regulatory Commission which also reviews applications for the construction and operation of natural gas pipelines, but it does not oversee pipeline operations.
The Federal Railroad Administration (part of the Department of Transportation) is responsible for railroad safety, including rail transport of crude oil and refined products.
Who Regulates Tax and Financial Compliance?
The Securities and Exchange Commission is in charge of financial and organizational compliance of interstate public utility holdings, as well as publicly traded companies in the oil and gas industry.
The United States does not have a national tax on the production of oil or gas. Individual states tax the extraction of oil and gas produced within that state. Companies profiting from the extraction and sale of oil and gas are also subject to local, state and/or federal income taxes on production revenue.
