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Domestic oil production expected to give Americans relief at the pump
Aug 07, 2013 | 174 views | 0 0 comments | 8 8 recommendations | email to a friend | print
By David Holt

The price at the pump has had more swings than a schoolyard playground of the past couple of months, and consumers can expect more. Yet America is on track to take more long-term control over its destiny with fuel prices, as we continue to realize the benefits of increased domestic oil and natural gas production.

Over the past half a year, gas & diesel prices have swung from yearly lows to recent month-over-month highs of $3.67 per gallon. Earlier lower prices came on the heels of refinery expansions that increased gasoline supply on a regional basis, as well as lower than expected consumption. Even still, prices remained well above their 2012 average for the month of June and have jumped $.20 cents in the past two weeks. Its no surprise that Texas has the 8th lowest average gas price in the nation, but more on that in a minute.

We live in a world still thirsty for oil. While projections are that increased energy diversity will help abate demand for petroleum, that reality is decades away. In the meantime developing nations like China and India are continuing to dramatically increase their demand for fossil fuels as they modernize their economies. Since oil is traded on the global marketplace this modernization puts upward pressure on prices and keeps gas prices elevated for American consumers.

Crude oil makes up more than 85% of the price of a gallon of gas and has spiked in the past few weeks. Tensions in Egypt have pushed prices higher as fear of a broader conflict weighs on traders. Prices are up 5% since the Egyptian military deposed Mohammed Morsi in late June.

Americans are also increasing their summer driving, pushing oil inventories to the lowest level in two months, which is 24% lower than this time last year. This tight supply pushes prices higher as refiners compete for fewer barrels.

Additionally, lagging energy infrastructure and pipeline installations due to an oftentimes overly burdensome and bureaucratic regulatory machine (with the four year delay in approving the Keystone Pipeline being but one example!) continue to prevent the free flow of energy around the country. This creates regional supply shortages, keeping prices higher and more volatile.

Moreover, the use of domestic crude oil provides a much larger benefit to our economy. Every one dollar spent on gasoline derived from foreign oil, generates .40 cents of economic impact. If that gallon of gas was created from domestic oil, that creates $3 of economic impact. Increasing our use of domestic supplies would also help lower the 58% of the nation’s trade deficit attributable to foreign oil purchases.

According to EIA, U.S. refiners have increased their capacity by nearly 3% in the past year. The nations 143 operable refineries now have a total capacity of 17.8 million barrels per calendar day (bbl/d), an increase of 0.5 million bbl/d since January 2012. This increased capacity, coupled with new sources of domestic oil will help to mitigate prices shocks and put downward pressure on gas prices. As we even out the volatility in the market with increased domestic production and a reduced reliance on foreign oil sources, consumers will benefit.

No one can predict what the price of gas will be in five years, or even 5 months. But we do know that domestic oil production and an improved ability to transport crude oil into and around the U.S., will help to mitigate future price increases and may even help lower gas prices in the intermediate and long term. America is in the middle of a second industrial revolution thanks to our domestic energy sources. The driving public as well as the rest of the nation stands to benefit.

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