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National & World Ag News Headlines |
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Low Oil Prices Reduce Pain at the Pump
USAgNet - 09/26/2016
If you think you're paying less for gas these days, it's true. And a Missouri University of Science and Technology professor can explain why.
Nationally, the average price for a gallon of regular was -- on Sept. 21 -- $2.214, down from September 2015 ($2.365) and 2014 ($3.406). And when measured against September 2008, a gallon of gas today is over $1.50 less.
Dr. Joseph Smith, the Wayne and Gayle Laufer Chair of Energy and director of the Energy Research and Development Center at Missouri S&T, says there are three main factors affecting the oil market -- and thus gas prices.
First, there's cheap gas from hydraulic fracturing, or fracking. "The fracking industry has remade itself," Smith says. "It's more efficient."
Fracking technology originally was developed when oil prices were above $100 a barrel, Smith says. But now oil varies between $30 and $50 a barrel -- half of what it was.
"The U.S. fracking industry is alive and well even with this significant reduction in profit margin," Smith says.
The reason for this, he says, is the industry has improved the technology used to frack and recover oil and gas from wells, which has made it less expensive to drill for and recover oil. And that means oil companies can continue to operate with a profit with
reduced oil prices.
The second reason gas prices remain low is that "the Saudis are flooding the market," Smith says.
On his trips to the Middle East, Smith's colleagues from that region asked him what the United States was doing to develop oil from shale and tar sands because they knew if that technology was successful, it would decrease America's dependence on foreign
oil.
When Saudi Arabia and OPEC couldn't agree on production limits to better control supplies in the world market, Smith wasn't surprised. Those countries with the largest market share didn't want the U.S. to take their share, which would reduce the money going
to Saudi Arabia and others in the Middle East.
"It was also clear while traveling in these countries that their political stability was closely tied to the oil markets," Smith says. "The Saudi's ability to produce oil at a fraction of the cost compared to the cost to produce oil in the U.S. allows them the ability to
control market supply, which helps provide political stability to their country."
Finally, worldwide there is a reduced demand for oil, not just from the United States but also from countries such as China and India. In the U.S., autos are more fuel efficient today than a decade ago. China and India, after going through decades of explosive
growth, have leveled off building roads, bridges, and high-rise office and apartment complexes.
Everything occurs because of supply and demand. In 2011, the International Energy Agency estimated a 30 percent increase in energy demand, Smith says. Most of that demand was expected to come from developing countries, with China and India being a big
part of the forecast.
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