Updated: Jan 13
Since January of this year, gas prices have been on a continuous rise. At a national average of $3.39 in late October, it is the highest since 2014 with no intent of going down anytime soon. There is a wide variety of factors that impact gas prices, but the basic four are the wholesale cost of crude oil, refining costs, distribution and marketing costs, and taxes. Those contribute to the general price, so another factor for the more present price change is your basic supply and demand. If you look at the charts below, you will find the last two years of gas prices and U.S. Crude oil Stocks (excluding petroleum reserve).
As you can see, they are almost a direct reverse-reflection of crude oil stocks and price per gallon. Comparing these charts to the recent market conditions, they tend to make even more sense. Prices decreased as stock increased in the beginning of the pandemic and stayed relatively constant throughout it. As we neared 2021, more people started getting out on the streets again. Then, in the beginning of 2021, when we started getting closer to normal life, the petroleum consumption rose while the stock is at its lowest.
However, supply and demand in the United States are influenced by the wholesale crude oil price, which accounts for 53 percent of the price, according to the US Energy Information Administration (EIA).
Early last month, it didn’t help when OPEC (Organization of Petroleum Exporting Countries) agreed to only a frugal increase in production of .4 mb/day. However, as of recent years, our reliance on oil from countries of the OPEC has decreased significantly by an average of about 25,000 barrels per month in 2020. That is about seven percent of the oil produced in the United States alone, excluding the offshore wells along the Gulf of Mexico.
The Trump administration expanded on the United States’ oil potential in a number of ways, which has made us the number one producer in both oil and natural gas. Again, going back to 2020, we produced 15 percent of the worlds crude oil. One key influence to achieve this was by reducing the time to approve drilling permits on public lands by 50 percent, which culminated by an increase of 300 percent in permit application.
One of the more recent controversies has been on the Keystone XL pipeline, a planned extension of the current Keystone pipeline that would have increased oil transport to refineries on the Gulf by 830,000 barrels daily. The project was approved by Trump, but Biden denied it on his first day in office, effectively shutting the project down due to environmental concerns. There has been a hefty oil spill in North Dakota from the current Keystone pipeline, and they predict that the expansion would add to such disasters. If it was your typical oil that would be one thing. However, the deposit under Northern Alberta’s Forest (where we source the oil from) is known as Tar Sands. Extracting oil from the Tar Sands is more work and the oil produced is thicker, more acidic, and more corrosive than traditional crude oil. This creates greater risk of leakage through the pipeline and a more difficult clean when it does.
However, the pipeline would increase jobs and production and have a reducing effect gas prices, but I’m not sure it is truly worth the negative impact it could have on our land. After all, the pipeline wouldn’t increase oil production by a substantial amount, and with the trend of using more renewable and environmentally friendly resources, the pipeline extension could be outdated by the time it is built. As of June 9th, TC Energy, who proposed the project, has announced the cancellation of the pipeline. Who knows if anything will change in the future.