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So About that $2 Gas …?

By Daniel J. Graeber | Mon, 15 July 2013 23:21 | 5

U.S. gasoline prices are expected to remain volatile for the month because of geopolitical fallout in the Middle East. Concerns over the global oil supply are fading away from the minds of most consumers and few people care even less about the unrest in Egypt. A weekend survey said gasoline prices were in decline, though that did little to ease the minds of American commuters scratching their heads at the pump during the first major heat wave of the season. A year ago, American consumers were paying substantially less for gasoline.  While U.S. oil production gains mean fewer imports, there appear to be few guarantees for energy security, and lower gasoline prices, in the near term.

Motor group AAA reports an average Monday price for a gallon of regular unleaded gasoline of $3.61. That's more than 4 percent higher than last week, which translates to a 2 cent increase every day since July 8. A weekend assessment from Lundberg Survey said gasoline prices declined by less than 1 percent compared to last month. The U.S. Energy Department said it expects gasoline prices for the season to level off at around $3.50 or so, though that's still higher than the $3.39 average reported year-on-year.

Related article: BP to the Rescue for Midwest Drivers

Former House Speaker and presidential hopeful Newt Gingrich said a then-struggling U.S. economy can't afford to spend billions of dollars overseas to buy foreign oil when there was plenty of that Texas tea at home in the United States. Gasoline prices, he said, could drop to $2.00 per gallon if drilling activity increased dramatically in the United States. A year later, nearly 90 billion barrels of oil was produced worldwide and almost half of that came from new drilling operations in the United States. Gasoline is still nowhere near $2.00 per gallon even though the United States is mentioned in the same breath as Saudi Arabia.

The International Energy Agency said this week fears of so-called peak oil are more or less unfounded in part because of production gains from the United States. Production from the Bakken formation in the Northern Plains states helped move the North Dakota economy from failure to frenzy in roughly a decade's time. Issues overseas, however, are driving domestic gasoline prices higher as oil on the international market stays above the $100 per barrel mark for the first time since last year.

Related article: Why Gas Prices are Unlikely to Fall Anytime Soon

Those like Gingrich and the American Petroleum Institute said building a pipeline like Keystone XL would shield the North American economy from the overseas turmoil wreacking havoc on retail consumer markets. API says 70 percent of the people it surveyed said Keystone XL would help with national security issues tied to energy markets. A rival survey of public opinion from the Pew Research Center found 83 percent of the people in the United States wanted the government to focus more on domestic issues and leave foreign affairs to the foreigners. For energy matters, however, those two issues mix.

Gingrich and his supporters said a dramatic new way of thinking about U.S. energy potential would shield the North American economy from overseas turmoil. That's done little, however, to persuade U.S. refiners that they're the ones, not retailers or consumers, that have to cover the costs for price increases in the global energy market.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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Leave a comment

  • luc on July 16 2013 said:
    There are 3 reasons why oil is likely to stay very expensive.

    - Outside the Middle East, new drillings are around 10 times more expensive than drillings in the Middle East.

    Bernstein Research recently estimated that the marginal cost of oil production - the cost of production for the most expensive new fields - rose to $104.50 a barrel in 2012, up more than 13% from $92.30 a barrel in 2011.

    The most expensive oil fields essentially set the floor of oil prices, worldwide. Including in the Middle East.

    - Thanks to asia, the world’s consumption of oil is still increasing, contrary to what we saw after the first oil crisis (1973) and after the second oil crisis (1979-1981).


    - OPEC’s share of world oil production has been rising since 1985.

    The more oil is produced in the Middle East, the more expensive oil will be if there are tensions.

    In 2011, the arab spring and tensions with iran caused the price of oil to rise by nearly $40 a barrel.
  • mark chambers on July 16 2013 said:
    Gingrich is a nut case who knows little about the drawdown rate of these wells. Plus the type of oil coming down the keystone does nothing for national security and providing gas. It makes roads in other countrys so the price of motor fuel stays high.
  • jack oneal on July 16 2013 said:
    Simple GREED[ nothing else
  • Jeffrey J. Brown on July 17 2013 said:
    While rising US production helps, the reality is that the US, so far at least, is gradually being shut out of the global market for exported oil, as developing countries, led by China, have consumed an increasing share of a post-2005 declining volume of Global Net Exports of oil. For more info, you can search for: ASPO + Export Capacity Index.

    And regarding US oil & gas production, given high and rising decline rates from existing wells, the industry is going to have a great deal of difficulty in just maintaining current production rates over the next few years. For more info, you can search for: Is it only a question of when the US once again becomes a net oil exporter?
  • Ronb39339 on July 17 2013 said:
    The U.S. economy will not recover in our lifetime due to high oil prices... Just go ahead & call it the lost generation & ignore the lost decade. Call it the new normal. A nice fat tax on fuel exports would help lower fuel prices some.

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