Petroleum director: Russian oil sanctions not helping but taxes, production restrictions contribute to skyrocketing prices

(The Center Square) – Illinoisans are paying a premium at the pump and many blame the conflict in Ukraine, but experts say it has been a long time coming.

The price per gallon in the Land of Lincoln has been steadily climbing, with AAA reporting the average price per gallon at roughly $4.54. In some counties, Illinoisans are paying as much as $4.72 for a gallon of gas.

Because Russia is the world’s third-leading oil producer, many may fault U.S. sanctions on Russian oil for skyrocketing prices, but Seth Whitehead, executive director at the Illinois Petroleum Resources Board, said it’s much more complex than that.

“Basically, demand has been higher than supply for quite some time, and we’ve been kind of trending toward the $4 mark and finally shot way past that,” Whitehead told The Center Square.

Lockdowns and fear suppressed demand during the pandemic, creating a rubber band effect once restrictions were lifted, according to Whitehead.

In addition, policies from the Biden administration have had a chilling effect on production, he said. Whitehead also added the ESG (Environmental, Social and Governance) movement has led to an investment decline of roughly 50% since 2011.

“We need to be continuously drilling new wells and bringing new wells into production because existing wells decline rapidly in production so that movement has kind of driven down new development,” he said.

These factors along with investors in bigger companies demanding a higher return on their investment have combined to slow supply.

“The bigger companies like Exxon and Chevron and whatnot have been basically not looking to ‘drill, baby, drill’ so to speak,” Whitehead said.

Whitehead hopes the smaller independent companies that dominate Illinois can pick up the slack since they have more freedom to capitalize on higher prices.

Although a recent drop in barrel prices has halted the upward trajectory, Whitehead said he thinks market forces are going to drive prices ever higher.

“The summer driving season is coming up so we’ll switch to the summer fuel blends which add more cost to the price at the pump so we’ll see that,” he said. “As well coming up this summer, a lot more people [will be] driving so demand will go up, so prices will probably remain elevated throughout summer at least.”

Whitehead expects prices to get as high as $5 a gallon. And Illinois’ exceptionally high gas tax rates aren’t helping.

“We do have the second-highest gas tax in the country and it adds up to 78 cents per gallon, so that keeps prices elevated,” he said.

Illinois legislators are looking into reducing gas taxes temporarily, but until then, Whitehead said the soonest he hopes to see prices fall would be at the end of the year.

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