Gas Prices on the Rise, But New Discoveries Prove Oil is Still Out There
Rising gas prices have Americans on edge. They also have the economy on edge. Higher prices at the pump hurt not just commuters but anyone who relies on transportation in the delivery of goods or services. This means pressure on employers at just the time
Opinions vary on the cause of the increases, but fear and speculation seem to be the driving forces. Kevin G. Hall, writing on the issue for the Seattle Times, reported that some think speculators are behind the increased prices at the pump.
"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation," Fadel Gheit, an analyst at Oppenheimer, told Hall. "I still remain convinced oil prices are inflated."
As well they may be, if Hall is correct. He notes that U.S. demand for refined fuels is down compared to previous years. “In fact,” Hall writes, “U.S. demand and consumption patterns are so abnormal, when compared to recent decades, that oil and gasoline both are being exported. (U.S. gasoline fetches a higher price as an export.)”
And this is the second reason some are pointing to as an explanation for higher prices at the pump.
According to the Christian Science Monitor, “Compared to a year ago, exports of gasoline have tripled — at a time when the price of gasoline is 42 cents a gallon more expensive at the pump.” The implication is that this fuel could be sold in the U.S. where it would lower prices.
The only problem is that companies that produce refined fuels will sell those products to markets where they can make the most money, and at the moment, that’s not necessarily in the United States.
In the domestic market U.S. producers “are losing money on every gallon they sell and they can’t make it up on volume,” John Felmy of the American Petroleum Institute told the Christian Science Monitor. “But people are willing to pay higher prices for gasoline on the international market.”
A former executive for Shell points to growth in demand around the world as cause for increasing prices domestically, even as demand falls in the United States.
"Demand continues to rise in Asia and whether we use less or not doesn't matter,” John Hoffmeister, former head of Shell’s U.S. operations, told Newsmax.com.
The proper response of a market to increased demand is to increase supply. Failure to increase supply will inevitably result in rising prices.
Fortunately, there are indications that significant crude oil supplies remain to be tapped.
On February 16, Andarko Petroleum Corporation announced that results from an appraisal well in the Gulf of Mexico confirmed the existence of a significant new oil reservoir.
Results from the company’s Heidelberg-2 appraisal well, operating in 5,000 feet of water and at a total depth of 31,030 feet, confirmed that more than 200 million barrels of oil exist in the area.
“We’ve been looking forward to drilling an appraisal to our Heidelberg discovery for some time, and we could not be more pleased with the results,” Bob Daniels, Andarko Sr. Vice President for Worldwide Exploration said in a company press release announcing the results. “The successful penetration of high-quality, oil-bearing sands confirmed the continuity of the reservoir, and validated our geologic model, and initial resource estimate of more than 200 million barrels of oil. We plan to immediately sidetrack the well to evaluate the down-dip extent of the field, and plan to initiate pre-FEED (front-end engineering and design) activities to prepare for sanctioning a development project.”
In November, the company also announced significant resources in Colorado. In a press release describing its operations in the state’s Wattenberg field of northeastern Colorado, Andarko noted the field “provides a net resource potential of 500 million to 1.5 billion BOE (barrels of oil equivalent).”
Clearly, drilling can pay off, and extra fuel resources developed through drilling will increase the supply on the international markets, an important step if we desire lower prices.
Underscoring the potential of bringing such resources online and the effect increased supplies may have on the price of crude oil, Shell Oil announced that it was planning for prices to fall into a range of between $50-$90 per barrel over the next 12 months. As of February 23, West Texas Intermediate crude was at $108.55 per barrel while Brent Crude was higher still at $123.62.
According to the Telegraph of London, speaking to analysts about the company’s forecasts, Simon Henry, Shell’s chief financial officer, said: “I'm not sure we see it right at the bottom of that one over the next 12 months, but we could certainly see it in the middle of that range."
This would likely result in a stabilization of prices, but is only likely to occur if outside factors that prevent development of fuel supplies are avoided.
The biggest such outside factor in the United States is government interference. Ominously, President Obama has blithely dismissed increasing supplies.
In remarks on February 23 about Republican energy plans, the President commented that they amount to “three point plans for $2 gas” where “Step one is drill, step two is drill, and step three is keep drilling.”
As the Andarko finds amply illustrate, drilling works, and new finds when brought online help all energy consumers.
But President Obama doesn’t see it that way. “You know we can’t just drill our way to lower gas prices,” he said.
And not drilling helps how, exactly?
Ensuring prosperity and a strong economy means we need more oil (and other energy supplies) and not less.
And if liberal do-gooders like President Obama think that up is down and black is white and less oil will lower fuel prices, then perhaps it’s time, come election day, to put someone with a greater degree of economic common sense into the White House.
Image Credit:Shell Oil