AILSA CHANG, HOST:
The U.S. produces more oil and gas than any other country in the world. So why are prices at the pump 30% higher than they were last year? That's a question that our colleagues over at The Indicator from Planet Money are getting. Cooper Katz McKim and Darian Woods explain the complicated system behind fuel pricing.
COOPER KATZ MCKIM, BYLINE: The national average for gas sits above $4 right now. But depending where you are in the U.S., you might be paying a lot more. Take California, where Carter Victorio in Los Angeles was recently filling up his Toyota 4Runner.
CARTER VICTORIO: Really, when I get to the gas station, it really bums me out 'cause I'm like, I just put in $30. And I'm at a - I'm not even at a quarter tank. And I don't drive the most fuel efficient vehicle, you know what I mean?
DARIAN WOODS, BYLINE: What might be confusing here is that the U.S. produces a lot of oil and gas, a fact that President Trump reminded the country of a couple of weeks ago.
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PRESIDENT DONALD TRUMP: America has plenty of gas. We have so much gas. Under my leadership, we are No. 1 producer of oil and gas on the planet.
WOODS: That shift actually began in the 2000s with the oil industry's move to shale production.
MCKIM: But we do still import some. Most is not coming through the Strait of Hormuz, though. The majority is from Canada.
WOODS: So there's no supply shortage in the U.S. Why the hike in gas prices then?
MCKIM: Clayton Seigle is a senior fellow for energy security at the Center for Strategic and International Studies. He says, remember, oil is a global commodity.
CLAYTON SEIGLE: And in the case of oil, they are what we call fungible, which means that more or less they're kind of substitutable from one place to the other. And what that means is that a supply disruption anywhere affects prices.
WOODS: Right. You can think of this marketplace like a giant bathtub. Any oil from the U.S. goes into that bathtub, along with oil of the same grade from other countries.
MCKIM: The bathtub theory comes from Yale economist William Nordhaus. He says it doesn't really matter where the oil comes from, just whether that oil tub is rising or falling. That's what determines oil prices.
WOODS: So imagine the Strait of Hormuz is a pipe feeding a fifth of the oil into the bathtub. Clayton says that if that pipe is clogged, as it is now, the bathtub will be less full.
SEIGLE: So a supply disruption that's this big is definitely going to leave a mark. It's definitely going to keep the volume in that tub lower than it needs to be, and that means, just from Economics 101, you're going to have price increases.
MCKIM: But, Darian, the thing is here - the thing is, it does help that the U.S. is a big producer of oil and gas. Think back to the 1970s.
WOODS: Great times, I hear.
MCKIM: All right. The not great times, though, the 1973 oil crisis, that's when there was this massive oil embargo on the U.S. by Arab countries.
WOODS: Yeah, the U.S. was a lot more reliant on oil imports back then, and it was really destabilizing. Clayton says the situation is totally reversed now. The U.S. can rely on its own domestic production.
SEIGLE: I think a lot of observers want black-and-white, protected-not protected. We don't need to worry about it, or we do need to worry about it. But in the real world, it's shades of concern.
MCKIM: So it turns out domestic production is actually shielding the U.S. from some of the pain.
WOODS: Yeah. Even though many are feeling the pinch, at least we're not worried about supply shortages like back in the 1970s. That could push prices even higher.
MCKIM: That's a real glass-half-full perspective, Darian.
WOODS: Well, gas tank half full.
MCKIM: (Laughter) Nice.
WOODS: Darian Woods.
MCKIM: Cooper Katz McKim, NPR News.
CHANG: And The Indicator is launching their own newsletter answering more economic questions. You can sign up at npr.org/newsletter/indicator.
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