A U.S. election season … the summer driving season … political instability in some parts of the world … and upcoming earnings results for oil companies. This is the backdrop against which consumers are hearing a lot of commentary about gasoline prices and energy policy.
It can sometimes be tough to tell reality from rhetoric. So I thought I would recap a few key stats about gasoline, crude oil and the companies producing it.
About 67 percent of the average price consumers paid at the pump in March was due to the price of crude oil, according to the latest data from the U.S. Energy Information Administration. Crude oil is a commodity traded on global markets, just like corn, wheat or copper.
The price of a barrel of West Texas Intermediate crude oil averaged about $103 in the first quarter of 2012. The high over the quarter was $109 on Feb. 24, and the low was $96 on Feb. 2. This graph demonstrates such price fluctuations, from the run up in 2007-2008 as global economies grew to the sharp decline during the global economic downturn in 2009.
The EIA makes it clear that a multitude of factors can affect the market’s views on supply and demand conditions relating to crude oil. In a recent report, the EIA cites several reasons for the rise in crude prices in the past few months:
- Stronger global oil demand and global economic growth
- Cold weather in Europe, particularly in February
- Supply interruptions in South Sudan, Syria, Yemen, and the North Sea
- Tightened sanctions against Iran
- A modest level of global spare crude oil production capacity
The world’s oil comes from a multitude of different companies – both international oil companies (IOCs) like ExxonMobil and national oil companies (NOCs) such as Saudi Aramco. ExxonMobil may be the largest oil company in the United States, but on a global scale, we aren’t even in the top ten. In fact, ExxonMobil accounts for less than 3 percent of global crude oil and liquids production.
While some have tried to link increases in U.S. retail prices with increases in exports of gasoline and diesel, the U.S. EIA says the data “does not support such a linkage.” When U.S. markets are well supplied for gasoline and diesel as they have been recently, refiners – like any other manufacturer – must find markets for their product to keep their business running. U.S. refiners exported about 5 percent of the gasoline they produced in 2011. Compare that to other U.S. commodities: In 2011, the U.S. exported almost 10 percent of the coal it produced; about 15 percent of its corn crop; and an estimated 45 percent of its soybean production.
The taxes collected by federal and state governments can be several times greater than refiners’ profits. For example, ExxonMobil made less than 6 cents on average for every gallon of gasoline, diesel and other petroleum products we refined and sold in the United States in 2011. On the other hand, the average local, state and federal taxes are more than 49 cents per gallon of gasoline, according to recent data.
Because it’s a global market, new supplies of oil coming online anywhere in the world can help put downward pressure on the market-driven price. And it might surprise people to know that the United States is the third-largest producer of crude oil in the world, behind Russia and Saudi Arabia.
The United States produced about 3 percent more crude oil in 2011 than 2010, according to the EIA, and production is expected to grow by about 22 percent from 2010 to 2020. Much of the increase is due to technologies developed by the oil and gas industry that have boosted unconventional energy production, including deepwater and tight oil resources.
As Congressional Research Service data show, much of the recent increase in production was taking place on lands not controlled by the federal government. Comparing 2010 to 2011, total crude oil production on non-federal lands was up about 11 percent, while production on federal lands declined by almost 14 percent. In fact, the federal government continues to keep the Atlantic Coast, Pacific Coast and nearly all of the Eastern Gulf of Mexico closed to oil and gas development – meaning that about 85 percent of all U.S. offshore areas remain off-limits.
Canada’s oil sands represent one of the world’s largest sources of energy – as well as the United States’ leading source of imported oil. More than 20 percent of the oil the United States imports comes from Canada, and that number is expected to grow. But the speed and affordability of those supplies will depend upon the infrastructure to get them here. The Keystone XL pipeline would allow about 800,000 barrels of oil per day to flow to the United States’ world-class refineries. It would transport up to 100,000 barrels per day of U.S. oil from the Bakken formation in North Dakota and Montana – where “existing pipeline networks are overwhelmed by the surge in Bakken output,” according to a recent news article.
These are just a few of the things to consider when you hear about gasoline prices, what’s driving them and what the U.S. should do. We can’t overlook the fact that gasoline prices are tied to crude prices – and crude prices are set in the global market.
When it comes to increasing global crude supplies, the United States must play its part by making policy decisions that support safe and responsible long-term development of North American oil resources.