Decisions made by the leaders of nations can affect oil supply and demand, explains Tom Seng, director of the School of Energy at the University of Tulsa, but he says the price at the pump is not all about politics.
However, Brook Simmons, president of the Petroleum Alliance of Oklahoma, says the president’s actions have consequences.
“The president has taken more than 100 actions to reduce U.S. petroleum supply, including increasing industry regulatory costs,” he says. “The president’s decision to delay permitting, reduce federal acreage available for drilling and increase the costs of drilling are having a material effect on supply.”
The Keystone XL pipeline, drilling on federal leases and the war in Ukraine are factors, says Seng, but this summer’s escalation of gas prices was set in motion more than two years ago.
“Going back to when the COVID lockdown happened, there was a substantial drop in demand for all the refined products,” he says. “People were scrambling to find a market.”
In February 2021, many countries reopened.
“That’s the point at which the demand started to take off,” says Seng. “We had crossed the $60 a barrel threshold for oil.”
The tendency at high prices is for oil and gas companies to drill, and many must borrow money to do so. But in the spring of 2021, with oil prices still going up, “investors said to slow down,” says Seng, who spent 30 years in the oil and gas industry before switching to education. “They told them not to borrow money and to go into debt to produce oil at higher prices. They wanted them to pay down debt, pay dividends for a change, and do share buybacks. Discipline was instilled on these companies by their shareholders.”
And today, Seng says, “even if companies wanted to dedicate more money to drilling, there are supply chain and labor issues.”
Gas prices were rising before Russia’s invasion of Ukraine, says Simmons.
“Prior to the war, only about 8% of U.S. crude oil and unfinished petroleum imports came from Russia, and they landed primarily on the east and west coasts, where the coasts lack pipeline infrastructure to U.S. basins. However, assumptions about Russian crude and unfinished petroleum supply have affected the global petroleum markets.”
President Joe Biden canceled the northern extension of the Keystone XL pipeline from Canada early in his presidency.
“Had he not touched it, and if TC Energy were still building the pipeline, it still would not be in service today,” says Seng. “Nothing he did has a near-term impact on our ability to produce more oil.”
However, the pipeline would have come online in 2024, says Simmons.
“The cancellation of [the pipeline] affected assumptions about future supply and demand, as well as considerations about how U.S. Gulf Coast refineries would get crude and from where, but the immediate impact on supply beyond the policy signal was not great,” he says.
Looking on the Bright Side
Oil companies do not set the price of gasoline, crude oil, or natural gas – the markets do, says Simmons.
“Just like farmers, oil producers have to take the prices given. Higher crude oil prices allow upstream companies to offset the years when they struggle to make a profit or have to borrow more money,” he says.
With a highly specialized oil and gas economy, Oklahoma prospers when oil prices are higher.
“Higher oil prices mean more jobs, a bigger economic lift locally, and more money for state coffers as well as for Main Street businesses,” says Simmons.
So while you may feel discouraged at the pump, there’s a definite bright side to living in Oklahoma, says Seng.
“I don’t think everybody in Oklahoma really appreciates the situation that we are in,” he says. “You can go to the gas station, pull that trigger and there is fuel. We pay almost the lowest price for all forms of energy in the country on a regular basis. And if the market got really bad, with disruptions all along the east and west coasts, we could still be getting gas.”