Midwest gas prices rise rapidly amid regional, global oil supply shocks


GVL / Sydney Lim

Joseph Poulos, Staff Writer

Gas prices in West Michigan are on the rise again this month, due in part to multiple factors on the regional and national levels.

In the Midwest, the explosion of a British Petroleum (BP) refinery in Ohio on Sept. 20 has begun to constrict local oil supplies. The refinery, which has the capacity to produce 160,000 barrels per day, suffered a subsequent fire that left two employees dead and caused a full evacuation of the staff.

“Our thoughts are with the families and loved ones of these two individuals,” BP America said in a statement released the following day. “All other staff is accounted for and our employee assistance team is on-site in Toledo to support our employees impacted by this tragedy.”

This recent incident adds to the reversal of fortunes for local gas prices after they had started trending back into a lower direction.

According to the American Automobile Association, last month, Michigan’s average regular unleaded stood at $3.83 per gallon. As of Oct. 6, this average now stands at $4.34 per gallon.

However, the factors causing gas prices to return to higher rates are complex, as international politics play a role.

The international Organization of Petroleum Exporting Countries (OPEC) controls much of the world’s known oil supply and has large sway over global oil price control. During the first week of October, OPEC announced its decision to cut oil production significantly by 2 million barrels per day.

Polly Diven, a political science professor at Grand Valley State University and the director of its international relations program, emphasized OPEC’s massive influence on the global oil market.

“OPEC is an intergovernmental organization consisting of the leadership of 14 of the largest petroleum exporters,” Diven said. “Together they produce about 40% of the world’s crude petroleum. In the past year, OPEC has affected fuel prices by constricting or expanding their supply of petroleum on the world market.”

As for the recent announcement to cut oil production, Diven is sure that gas prices will take an additional hike as a result.

“This week, OPEC announced they will cut their joint oil production by 2 million barrels a day, down from 29.7 million barrels a day,” Diven said. “That cut in petroleum on the world market will result in higher fuel prices for countries that rely on OPEC production.”

Though the BP explosion in Ohio and OPEC are massive considerations for the rise of gas prices, Diven was quick to point out that international relations and global policy also have a significant effect on the market.

“The Russian war in Ukraine has had an important impact on fuel supply and prices,” Diven said. “The western allies have agreed to sanction Russia for its aggression, and thus face a limited supply of petroleum and natural gas from Russia. This impacts many countries in Central and Western Europe.”

The scope of the war in Ukraine has negatively impacted the invading power as well, but Diven said she believes Russia’s relationship with China will continue to keep it afloat in this regard.

“It is important to remember that China is the largest consumer of Russian oil and gas and that China has not joined the West in imposing sanctions,” Diven said. “While Russia is suffering from the sanctions, it has not lost its most important customer, China. India is also not joining the sanctioning group.”

Though the U.S. as a whole has little recourse in the wave of OPEC production cuts, Diven said that it can take some measures to reduce impacts on the domestic market.

“The U.S. Department of Energy maintains a Strategic Petroleum Reserve (SPR) which can be released into the market to ease cuts by OPEC,” Diven said. “For the past several months, the Biden administration has been directing the Department of Energy to release about a million barrels a day. The Department of Energy currently estimates that the U.S. SPR is about 714 million barrels. I believe fuel prices will increase if OPEC continues to constrain production, but the effects of this are much more severe in Europe than in the U.S., however.”

As for international relations, the U.S. has been trying to work with Saudi Arabia, OPEC’s production powerhouse.

“Saudi Arabia is by far the most important producer of OPEC oil and thus that country is largely responsible for the decision to restrict OPEC petroleum production,” Diven said. “The US has an alliance with Saudi Arabia, and President Biden traveled to Saudi Arabia last month as part of a diplomatic effort to maintain the OPEC oil supply.”

Despite these efforts, Diven believes OPEC’s latest production cuts represent a bold move against the U.S.’s economic interests.

“This move to reduce supply by OPEC is a sign that the OPEC leadership is willing to defy the western efforts in favor of Russia,” Diven said. “I should also note that Russia is not in OPEC itself, but that Russia is the leader of OPEC+, an organization of OPEC allies.”

For now, the confluence of events and factors continues to contribute to the rising of gas prices in Michigan and around the country as gas prices are expected to continue rising in the wake of the refinery explosion and OPEC’s decision.