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Why Can’t America Pump More Oil To Lower Gas Prices?

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Image of US Currency. Image Credit: Creative Commons.

Oil Prices Top $100 – Is There Relief in Sight? – Anyone who regularly drives certainly has felt some “pain at the pump” in recent months. Gasoline prices are now at record high levels, and likely could go ever higher. Much of it is about supply and demand, and while increasing supply could help stop the massive price spikes, it isn’t likely to happen.

There are several factors at play. Western Europe is now in the process of weaning itself off Russian oil as part of the sanctions imposed on Moscow for its unprovoked invasion of Ukraine. At the same time other major producers, including Saudi Arabia have expressed an unwillingness to fill the global supply gap.

U.S. oil companies could step up, see profits rise and even help lower prices at the pump. Yet, as of early March, U.S. oil production was at around 11.6 million barrels a day, eight percent lower than in 2019.

Moreover, the industry is unlikely to get back to pre-pandemic levels this year. There are several issues at play: oil producers have continued to struggle to find workers, while there are still supply chain bottlenecks that have further impacted the ability to ramp up domestic production. Everything from pipes to the specialized sand that is used in fracking to extract shale oil remains in short supply.

“They can’t find people, and can’t find equipment,” Robert McNally, president of consulting firm Rapidan Energy Group, told CNN in March. “It’s not like they’re available at a premium price. They’re just not available.”

The number of workers producing oil and gas has been steadily decreasing since 2015 due to the “graying of oil patch” as the workforce has gotten older. The sector then lost nearly 20,000 workers at the start of the pandemic. Even as hiring has ramped up, there are still about 12,400 fewer workers producing oil and gas than just over two years ago.

Blame the Investors

The biggest issue could be the fear of a price crash in the sector. Oil companies reported massive profits in 2021, but it actually followed equally massive losses in 2020 that resulted from the pandemic-fueled economic downturn. Oil prices are notoriously volatile, and the industry often experiences boom-and-bust cycles.

As a result, investors have made it clear to oil producers that they should not sink money into additional drilling efforts to pursue a future oil boom. Instead, the investors have largely signaled that they’d like to reap the profits during the current boom – which may not last all that much longer.

In fact, crude oil futures were actually sharply lower in mid-morning Asian trading on Tuesday, extending the steep overnight declines due to global recession fears, hurdles to the European Union’s (EU’s) ban on Russian oil, and fears of a new Covid-19 wave in China.

“The worm turned for oil bulls positioned for EU sanctions only to get sideswiped by headlines, suggesting Shanghai is tightening mobility restrictions and no EU embargo agreement,” said SPI Asset Management Managing Partner Stephen Innes in a May 10 note. “However, the swift repricing of global recession risks on the back of central banks hiking rates into a perfect storm is triggering investors’ sell-all reaction mode.”

Yet, even as crude prices fell six percent on Monday, gasoline prices hit another record high in the United States. Americans may not want to hit the road this summer.

Now a Senior Editor for 1945, Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military hardware, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Peter is also a Contributing Writer for Forbes.

Written By

Expert Biography: A Senior Editor for 1945, Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers, and websites with over 3,000 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, and international affairs. Peter is also a Contributing Writer for Forbes. You can follow him on Twitter: @PeterSuciu.